november ’19: over 3 billion lbs. of cheese milk depooled

How many hundreds of millions of dollars of farm milk revenue literally“evaporated” from producers’ milk checks in November 2020? The actualamount will never be known.

November 2019 saw Class III (cheese) milk prices in USDA’s federalmilk order program shoot up to $20.45 for farm milk testing 3.5% butterfat.Class III milk is farm milk that’s processed into cheese. As commodity Ched-dar prices shot upwards in early and mid-fall 2019, that set in motion what’scalled a “price inversion” in the federal milk order system.

Cheese milk prices moved up so fast in a single month that the ClassIII price climbed above that month’s Class I (fluid) milk values per hun-dredweight. That event seldom happens, particularly over the past severalyears that have featured ruinously low farm milk prices.

That sky-high Class III milk price in November begged legal Grand Lar-ceny, in the form of “depooling.” Depooling simply refers to the legal optionfor raw milk marketers to disassociate their milk from the market-wide poolfor a given month. There are 11 regional federal milk orders. Many of themhave varying rules about pooling and depooling farm milk. Those variationsare too complex to describe here.

The Milkweed estimates that in November 2019, well over 3,000,000,000lbs. of cheese milk was dis-associated with federal milks. At $20.45/cwt. forClass III milk last November, The Milkweed estimates that over $700,000,000of revenue potentially disappeared from dairy producers’ milk checks.

To arrive at these estimates, we compare August 2019 Class III pounds offarm milk in eight federal milk orders, versus the Class III volume pooled in No-vember. Why August? Because starting in September 2019, some marketersstarted de-pooling since Class III milk supplies, as commodity Cheddar prices rose.

Three of the 11 federal milk orders had so little Class III mil that thosearen’t worth analyzing —Florida (Order #6, ) Southeast (Order #7), and Ap-palachian (Order #5). Data on estimated depooling for the remaining eightfederal milk orders is summarized in data lined to each of those orders. Thedifference in Class III milk poolings between August 2019 and November 2019adds up to 3.397,487,361 billion lbs.

Multiply those 3.397+ billion lbs. by the November 2019 Class III priceof $20.45/cwt. That math comes to well over $700 million dollars.

Once that Class III milk was de-pooled in November 2019, how much theindividual marketers pay back to producers? That situation will vary by mar-keter, and perhaps by federal milk order. However, most dairy farmers actuallyreceived LESS income per hundredweight in November 2019 – after Class I(fluid) and Class III prices started spiking – than they received in August 2019.

Further information should be available in late February, when USDA re-leases its November 2019 “mailbox” prices. Those prices will reflect whatdairy producers in various locations around the nation actually were paid fortheir milk in November 2019, after various deductions have been subtractedfrom their milk checks.

Depooling worsens “negative PPDs”Confusion involving federal milk orders that value protein in their pricing

formulae is made worse by depooling Class III milk, when it comes to theloathed and misunderstood “Negative Producer Price Differentials”(PPDs).The bigger the amount of Class III milk in November 2019 in individual milkorders, the greater the “Negative PPDs” tended to be.

Thus, some dairy farmers’ eyes glazed over in disbelief when they sawtheir milk check summaries for November 2019 listing “negative PPDs” rang-ing between $2.50 and upwards of $3.00/cwt.. All that money subtracted in-come from their milk checks that they had hoped would be lifted by the$20.45/cwt. Class III price.

by Pete Hardin

November ’19: Over 3 Billion Lbs. of Cheese Milk Depooled (vs. August ’19)

California (Order #51)Aug. ’19 Class III # 230,105,650Nov. ’19 Class III # 31,753,619 Difference: 1,992,520 cwt.Difference X $20.45 = $40,747,034

Pacific Northwest (Order #124)Aug. ’19 Class III # 316,140,222Nov. ’19 Class III # 165,175,222Difference: 1,509,650 cwt.Difference X $20.45 = $30,872,342

Arizona (Order # 131)Aug. ’19 Class III# 140,464,564Nov. ’19 Class II# 81,666,989Difference: 587,977 cwt.Difference X $20.45 = $12,024,129

Southwest (Order #126)Aug. ’19 Class III# 547,787,137Nov. ’19 Class III# 8,346,942Difference: 5,394,401 cwt.Difference X $20.45 = $110,315,500

Central States (Order #32)Aug. ’19 Class III# 525,632,857Nov ’19 Class III# 115,376,199Difference: 4,102,666 cwt.Difference X $20.45 = $83,899,519

Upper Midwest (Order 30)Aug. ’19 Class III# 2,661,251,765Nov. ’19 Class III# 1,108,086,494Difference: 15,531,652 cwt.Difference X $20.45 = $327,622,283

Mid-East (Order #33)Aug. ’19 Class III# 536,618,841Nov. ’19 Clsss III# 248,835,918 Difference: 2,882,599 cwt.Difference X $20.45 = $58,949,149

Northeast (Order #1)Aug. ’19 Class III# 613,167,944Nov. ’19 Class III# 575,827,242Difference: 473,407 cwt. Difference X $20.45 = $96,811,731

Maryland Dairy Producer Files Lawsuit Against Former Cooperative

Andrew Toms, a Maryland dairy producer, hasinitiated legal action against his former milk coop-erative – Lanco Dairy Farms Coop (Lanco), relatedbusinesses and the co-op’s president, Joseph D. Hess,Jr. Toms’ filing alleges numerous grievances, includ-ing milk payments practices.

Perhaps most significantly, Toms claims thatLanco’s management and board failed provide an au-dited financial statement at the cooperative’s annualmeeting on July 30, 2019. During the prior 14 months,Toms claims he’d requested Lanco’s audited financialinformation several times, without fulfillment of thoserequests. Lanco’s records do not show Mr. Toms at-tending any annual meetings prior to 2019.

The complaint against Lanco and related busi-nesses was filed on December 19, 2019. The case isat the Circuit Court for Frederick County, Maryland.The case number is C-10-CV-19-000962.

Toms cites Maryland statutes that require for-eign cooperatives (i.e., those chartered in anotherstate) to provide financial audits to members, priorto the cooperative’s annual meeting. Toms’ farm cor-poration – Monocacy Farms, Inc. –was a member ofthe Lanco cooperative from 2009 until late 2019.

Lanco’s legal response to Tom’s complaint ar-gues:

• Toms is no longer a member of the cooper-ative, and thus has no standing. (He left Lanco andjoined Dairy Farmers of America in late 2019).

• Lanco is not bound by Maryland statutesthat require foreign cooperatives to provide annualfinancial statements to the Maryland Secretary ofAgriculture. Lanco responded that the Marylandstatutes apply only when a cooperative’s membersare entitled to “net proceeds from the sale of productsin the raw or processed state.” According to Lanco’sattorney’s response filing on January 22, 2020, thecooperative’s membership contract does not allocatepayments to producers in that manner. This is whyno dairy cooperative doing business in Maryland hasever filed with the Maryland Secretary of State.

• Lanco’s legal response contends that releaseof the coop’s financial details could cause harm tothe cooperative, if competitors or customers obtainedthat information. However, Lanco provides a sum-mary of the audited financials at each annual meetingand provides a written summary to members the fol-lowing month. Lanco’s auditors have been in atten-dance at all Lanco annual meetings. Lanco hassimply asked that if any member wants to review theaudited financials that they agree to sign a non-dis-closure agreement wherein the farmer agrees to notfurther distribute the information.

• Lanco states it offered to allow Toms to pri-vately inspect that cooperative’s financial audit andask questions of the Chief Financial Officer. (But

Toms disallowed that option, claiming that the coop-erative restricted him from sharing that informationwith any other persons, even with his lawyer.) Lanconever denied the right for his attorney to review thedocuments assuming his attorney would have signedan appropriate NDA.

Lanco has never understood why Mr. Toms in-sists on making the audited financials available tothe public so that Lanco’s competitors and customershave access to the information. Lanco indicated inCourt filings that it is concerned that Mr. Toms isseeking this and other information for improper pur-poses. This is particularly concerning given that Mr.Toms is now a member of another cooperative.

*Lanco contends that Toms’ strategy has been“akin to blackmail,” in that Toms offered to drop hisrequest for documents, refrain from discussing thematter, and exit membership in Lanco … if the co-operative would return his capital contribution inLanco immediately. The by-laws state that the boardof directors set policy for equity reimbursement forall members over multiple periods.

Toms’s allegations and Lanco’s counters willplay out in the legal arena. Toms filed a partial mo-tion for summary judgment arguing that as a matterof law the information was subject to production tothe Maryland Secretary of Agriculture and that hewas entitled to review financial and business recordsof Lanco. The Court denied Mr Tom’s motion forsummary judgment.

by Pete Hardin

8 — The Milkweed • February 2020

The above graphic was displayed by Dr. Mark Stephenson, Director of Dairy PolicyAnalysis at the University of Wisconsin-Madison. What’s really interesting about thisgraphic is that Dr. Stephenson tracks back to 2010 when his statistic – “U.S. Fluid MilkSales: Rolling Daily Average” – started falling off the table. 2010? What happened in 2010?

In 2010, two events occurred which helped accelerate fluid milk sales’ erosion:First, Congress passed the Healthy, Hunger-Free Kids Act of 2010. That legislation

addressed concerns about childhood obesity in the United States. That Act’s dictate toserve reduced-fat milk with school meals took effect in 2012.

Also in 2010, then USDA Secretary Tom Vilsack signed a Memorandum of Under-standing with Dairy Management, Inc. That M.O.U. specified that only low-fat and no-fat dairy products could be promoted in schools in tandem with the dairy promotion.That law’s dictates took effect in 2012.

Unfortunately, this graphic supports the correlation of Vilsack’s school milk edictin 2010 with overall, big declines in fluid milk use. Fears are that Vilsack’s action –which left school kids with less tasty, less filling beverage milk – has contributed tolifestyle changes among school children that may be carrying forward into adulthood.

In the past couple years, the only category of conventional milk that has en-joyed sales gains is Whole Milk – the tastier, full-fat stuff that cannot be served tokids in school meals programs.

During the past year, USDA Secretary Sonny Perdue has taken actions to giveschools greater discretion in milk beverage choices. But the U.S. dairy promotionbozos continue promoting only low-fat and no-fat dairy products to school childrenthrough the “Fuel Up to Play 60” promotion program tied to the National FootballLeague. Dairy Management, Inc., the major national dairy promotion group that ben-

efits from the mandatory check-off assessed against all U.S. farmers’ milk checks,that signed a Memorandum of Understanding signed by DMI with USDA in 2010. ThatM.O.U. locks dairy into promoting only low-fat and no-fat dairy products in schools.

16 — The Milkweed • February 2020

Message to members of Dairy Farmers of America:Congratulations, suckers!In 2019, Dairy Farmers of America (DFA) rolled out a novel line

of consumer beverages that blended 50% milk with 50% plant-basedliquids. Plant ingredients include soy, almond and oat. The almond isdubbed “Dairy + Almond. A DFA subsidiary, Live Real Farms, is themarketer.

Earlier publicity noted that this 50/50 blend was developed by re-search funded by Dairy Management, Inc. (DMI). DMI is the singlelargest recipient for the mandatory dairy promotion check-off assessedfrom producers’ milk checks. Developing dairy/plant blended bever-ages? DMI’s message seems to be, “Nuts to you.”

On the carton of “Dairy + Almond” is the statement: “This entirepackage is copyrighted XX 2019 Dairy Farmers of America, Inc.” Ex-actly what restraints that copyright notice might place upon citing in-formation on the “Dairy + Almond” product isn’t clear. Forinformation purposes only, The Milkweed will quote some specificsfrom the language on the “Dairy + Almond” package. And if DFA of-ficials don’t like that, they can send a nasty letter.

Nutritionally inferior: less protein and calcium A side panel for “Dairy + Almond” crows: “We took the protein power of dairy and combined it with the nutty

goodness of almonds — for what just might be the most purely perfectblend of milk ever.”

“Perfect blend?” “Dairy + Almond” is nutritionally inferior to100% cow’s milk. “Dairy + Almond” has 5 grams of protein per 8-ounce serving – apparently four grams of protein from dairy and onegram from almond. (Note: Nut proteins are not complete proteins. Theproteins contained in cow’s milk contain the full amino acid complex.)An 8-ounce serving of milk has 8 grams of protein. Thus, DFA’s“Wholesome” product has only 63.5% of the amount of protein con-tained in cow’s milk.

Calcium … you know, the stuff that builds strong bones and teeth?An 8-ounce serving of “Dairy + Almond” contains 160 milligrams of cal-cium — 10% of the Recommended Daily Allowance. Good, old-fash-ioned cow’s milk – the kind that DFA’s loyal dairy farmers produce –contains 550 milligrams of calcium per 8-ounce serving. Conclusion:DFA’s “Dairy + Almond” contains only 29.1% of the calcium containedin real milk. Again, nutritionally inferior.

Only 63.5% of protein content of real milk? Only 29.1% of the cal-cium content of real milk? DFA is marketing clearly inferior products,from a nutritional basis. No problem. The side panel claims: “100% Fam-ily Owned Farms.”

Another side panel on “Dairy + Almond” reads: “There’s more to being a dairy farmer than just producing good

food. It’s about working for a cause we can believe in.“We are passionate about producing food that is rooted in goodness

and honesty just like our milk blends.” “Honesty?” From DFA???The half-gallon paper carton of “Dairy + Almond” at a Madison,

Wisconsin area supermarket cost $3.99 – about twice the price of a half-gallon of cow’s milk. Inferior nutritional value at twice the price?

DFA’s message to its members and all other dairy farmers seems to be:“Nuts to you!” P.S. Truth be known … in January 2019, DFA shelled out $950

million to acquire the remaining 53% ownership in Stremick’s Her-itage Dairy –a beverage processor with two plants in California, aswell as facilities in Utah and Missouri. At the time of purchase, Strem-ick’s Heritage Dairy’s website listed plant-based “milk” as the pri-mary products it processed. If DFA members want to have some funat their co-op’s meetings, they ought to ask the following question:“How many of the dairy firms for which Stremicks was co-packingExtended Shelf Life milk products in January 2019 still remain withthe firm?” DFA’s priorities are not with milk-based beverages.Worse yet. DFA’s “Dairy + Almond” beverage claims that the busi-

ness is “100% Family Owned Farms.” Yes, DFA’s members saw theirco-op dive nearly $1 billion deeper in debt to acquire the remainingStremick’s ownership. But Stremick’s status as an “affiliate” meansDFA’s farmer-members do not share directly in the profits of selling thelikes of “Dairy + Almond” swill.

by Pete Hardin

Scrutinizing DFA’s Nutritionally Inferior “Dairy + Almond” Swill

Dairy Farmers of America is marketing a 50/50 Dairy Almond beveragecalled “Dairy + Almond” — one in a family of blended beverages. This product isnutritionally inferior to milk–less protein and less calcium.

Fluid Milk Sales Nose-Dive Started in 2010-2012