A3O-Lancaster Farming, Saturday, April 7,1990
THOMAS JURCHAK
Lackawanna Co. Extension Agent
Last year was the year of record
breakers on the up side when the
Minnesota-Wisconsin Price Series
set new records for four consecu
tive months from September to
December.
Now it’s setting records on the
down side with drops of 99 cents
in January and now $1.72 in
February. Never before has the M
- W dropped so far so fast for a to
tal of $2.71 in two months largely
on a drop of 29 cents in cheese
prices half of which came on the
first Friday in February.
If you had cheese in storage that
Friday afternoon it was worth
nearly 20 percent less than it was
that morning. It was the crash of
the cheese market still referred to
as Black Friday by cheese makers
and dealers.
Fortunately, the cheese market
has held since then at $1.26 but
the damage was done and butter
and powder prices were of no
help. In fact the Commodity Cred
it Corporation was back buying
powder for the first time since
June 1988.
Now the February M - W is
down to $12.22, the lowest since
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Milk Price Not Related To Production
last July, but still $2.34 above the
support price but expected to drop
more as milk supplies increase
and powder prices go down to the
support price where butter has
been since August 1988.
Once again the importance of
cheese prices in the M - W has
been demonstrated and, outside of
an aberration last year provided by
unusual world trade prices for
powder, continues to be the dom
inant dairy product.
Twenty years ago producers
changed the pricing formula from
the butter powder snubber to the
M - W price because it was higher.
Perhaps now we can change again
to cheese prices but certainly the
air will be full of suggestions for
replacing the M - W.
The full impact of the $1.72
drop in the M - W won’t be felt in
your check for February milk be
cause it will hit only the Class II
price in February and the Class 1
price in April.
Even so the Class II price for
February will be down $1.73 from
January but the Class I price will
be 24 cents higher making a uni
form or blend price of $14.22 for
February. That’s 95 cents less than
January but still $1.67 more than a
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year ago.
How much lower it goes will
depend mainly on how much milk
production increases this spring
particularly in Minnesota and
Wisconsin.
Help Coming
With the dramatic decline of
$2.71 in the Minnesota-Wisconsin
Price Series in two months, the
Pennsylvania Milk Marketing
Board scheduled a hearing for
March 21 in Harrisburg to lessen
the blow to producers shipping to
handlers regulated by state orders.
Normally the PMMB Class I
price would go down or up each
month as much as the M - W price
but the Board can change that to
spread out the differences over a
longer period. Also on the agenda,
at the request of farm organiza
tions, was the $1.05 disaster assis
tance increase on Class I milk that
would end on May 31.
The choices, of course, would
be to extend it at the present or a
lower rate or let it expire and pro
vide higher Class I prices by
modifying the use of the M - W
price.
PMMB producer prices for
Class I milk peaked at $18.68 in
February in northeastern Pennsyl-
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vania and had been scheduled to
drop to $17.69 in March and
$15.97 in April reflecting the
$1.05 disaster payment and the 99
cents and $1.72 drops in the M -
W price.
The April and later Class I
prices would be affected by the
Board’s action and may reflect on
premiums received by producers
shipping to Order 2 handlers.
Milk Equivalents
Speculation runs high in what
changes, if any, will be made in
the dairy price support program in
the new farm bill but the one most
likely to happen will be the me
thod that the Commodity Credit
Corporation uses to calculate the
milk equivalent of the butter, pow
der and cheese that it purchases to
maintain the support price.
For as long as anyone can re
member the CCC used the average
butterfat in milk to determine
these equivalents because it was
the one component of milk that all
handlers and producers were using
for marketing and pricing pur
poses.
And, over the years, no one
complained and it worked out well
for most producers when CCC
stocks of skim powder accumulat
ed to 600 million pounds and near
ly all the sales were for animal
feed.
Using butterfat to determine
milk equivalents at that time dis
torted die situation but worked in
favor of the producer.
More recently the demand for
skim powder in foreign markets
has increased, partly because of
mandatory production quotas on
European farmers, and we export
ed 350 million pounds last year,
more powder than ever before.
Meanwhile, between a, declin
ing demand for butter and die need
to make even more butter to get
the skim powder, CCC stocks of
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butter are now over 200 million
pounds and growing.
Once again the use of butterfat
to determine milk equivalents dis
torts the true situation but in the
opposite direction. Now it works
to trigger a January drop in the
support price even when the mar
ket price for manufacturing grade
milk was $3.00 above the support
price and changes are being sug
gested.
Dollars Make Sense
It’s true that using butterfat for
the last 30 years wasn’t always a
true reflection of market condi
tions but most of the time it was
because purchases of butter, pow
der and cheese by CCC were near
ly evenly divided among the three
products.
That isn’t true anymore and
markets can change. So far USDA
has been reluctant to make a
change so it may be included in
the 1990 farm bill.
Suggestions from industry have
included all the possibilities from
no change, to using solids not fat
to total solids but very few so far
have considered the possibility of
using a dollar value for CCC pur
chases. Dollars would be clearer
to everyone especially Congress
men who understand dollars a lot
better than milk composition.
All the information on the aver
age components of milk and their
value at a given price support level
are available and any trigger you
choose can be converted to a dol
lar value.
For instance the present trigger
of five billion pounds of milk
equivalent at the current support
price of $lO.lO would cost $260
million if all CCC purchases were
butter.
If purchases were all powder
costs would go to $320 million
and for all cheese to SS4O million.
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