Following questions about just who sets the price for dairy producers, federal officials said Friday they plan to take a closer look at the contracts traded on the Chicago Mercantile Exchange for products such as cheese.
Dairy producers and industry officials packed an auditorium on the University of Wisconsin campus Friday as Secretary of Agriculture Tom Vilsack and Department of Justice Antitrust Chief Christine Varney held their third workshop on competition in agriculture. U.S. Attorney General Eric Holder, who attended the first two meetings, was absent at this meeting focused on the dairy industry because of the funeral of a close friend.
As with earlier workshops, there was testimony about processors and retailers becoming too large, but the dairy meeting held additional significance because of a global price collapse in 2008 that wreaked havoc on producers. The dairy industry also has a large cooperative presence, which prompted worries among the cooperatives that they were being targeted by federal officials.
LOSS OF EQUITY AND CREDIT
On a panel of farmers, producers from around the country expressed similar problems, many of which involved concerns about their loss of equity and credit.
Jamie Bledsoe, who milks about 1,200 cows in California, said he lost all the equity he had built up in 25 years just in 2009 alone. Bledsoe said there needs to be more emphasis on a federal safety net and risk management tools for farmers. Echoing Bledsoe, Frances Horton, who has 14,000 head in New Mexico, said, “Our debt is three times what it was two years ago.”
Still, Horton said she doesn’t want drastic changes, such as the government trying to control the milk supply.
California Farmers Union President Joaquin Contente, also a dairy producer, said there are too many unregulated milk protein products coming into the country that disrupt the price for milk producers. Milk prices averaged $12.80 per hundredweight last year, but Contente said farmers needed closer to $18 per cwt to break even. Despite the dairy price crash, Contente noted that the consumer price index only fell about 7.5 percent last year.
Ed King, a 900-head dairy farmer from New York, defended the cooperative system, as did Horton. King said price changes are needed for farmers, but such changes may run out of time for many people, he said.
“We can’t afford to wait two or three years,” he said. “I just can’t imagine the credit community sticking with farmers for that long.”
One problem farmers have, Contente said, is the lack of a consistent producer voice.
“We don’t have a national voice for producers across the country,” he said.
But as Friday morning’s discussion progressed, officials raised more concerns over just how the national milk price is set and the actual trade of cheese contracts on the Chicago Mercantile Exchange.
Sen. Herb Kohl, D-Wis., started the criticism of the CME, saying the CFTC has reported that the volume of cheese traded on the CME generally represents less than 1 percent of all cheese produced in the U.S., but effectively sets the price for almost all milk and cheese in the country.
“This is a situation where the tail, controlled by a few traders in Chicago, can wag the dog of the market for milk across the country,” Kohl said. “At a time when Americans’ trust in financial markets is so low, relying on a market that can be easily manipulated should worry all of us.”
Kohl later said if one thing came out of the workshop he hoped it would be that officials would do everything necessary to ensure the CME and the CFTC are operating effectively and producing a real market.
“There probably isn’t a producer in the country who doesn’t feel it’s not operating effectively,” Kohl said.
Given the emphasis on the CME contracts, Varney said she “was fairly certain” that the Department of Justice, the Commodity Futures Trading Commission and USDA need to meet when they return to Washington to specifically talk about those issues. Varney said officials need to “ask how the exchanges are working,” especially “whenever you have a market that significant as thinly traded as that appears to be,” she said, though Varney said she didn’t want to presuppose what the issues might be.
The CME released a statement responding to the criticism: “CME prides itself on the strength of its market regulation programs and its robust surveillance systems, which are capable of monitoring and upholding the integrity of all CME markets.”
Farmers and officials questioned why dairy producers saw a quick and dramatic price drop at the end of 2008, yet the price at the retail case declined relatively little. One big complaint from farmers has been that processors and retailers unfairly paid farmers less, while not lowering retail prices.
DAIRY PRICE COLLAPSE
The dairy price collapse was one of the first major issues Vilsack had to address when coming into office last year. One of the issues in dealing with the problem, however, was regional differences within the dairy industry as producers in different states pointed fingers. Over the past year, those regional differences are dissipating and producers are coming more to consensus over the challenges they face, he said.
“It isn’t so much anything new, but it is consistency of message, which hasn’t always been the case,” Vilsack said.
USDA has established a dairy council that is meeting over the summer to come up with suggestions to improve markets for dairy producers as well, Vilsack noted.
“The fact that we have gone in 10 years from over 111,000 dairy producers in this country to 65,000 isn’t just because people have become more efficient,” Vilsack said. “While that may be true, I think we heard today about the many difficulties producers both large and small have in a marketplace that is not responsive and not as balanced as it needs to be.”
Vilsack and Varney also both stressed that the workshops do not have an agenda to specifically re-examine the Capper-Volstead Act, which exempts farmer cooperatives from antitrust laws. Vilsack said USDA is not looking at reformulating the law.
“We’re trying to make sure there is no misunderstanding what this is really about,” Vilsack said.
Representatives from the nation’s largest dairy cooperative, Dairy Farmers of America, made a point of providing a presence at the meeting by handing out stickers supporting dairy cooperatives.
This was the third meeting on competition issues, after a hearing on the seed industry and one on poultry. After each meeting, USDA has made some changes, Vilsack said, such as starting to examine how seed traits should be handled after a patent expires. New proposed livestock and poultry contract rules issued last week were also influenced by information from the poultry meeting, he said.
Source: DTN AgDayta Edition
Posted by Kaci Switzer
