Could Calif. Dairy Climate Really be Improving?

Could Calif. Dairy Climate Really be Improving?

January 4, 2014

A New Year...So What’s On The Agenda?

By Rob Vandenheuvel, General Manager of the Milk Producers Council

2013 is now officially in the books, and we have embarked on 2014. There seems to be a cautious optimism in the air, with dairy markets at historically strong levels and prices for some of the primary feed commodities – particularly corn – down significantly from recent highs. 

                                                                                     Photo: The Shelby Report

Of course, in an industry with markets as volatile as the dairy industry, we’ve seen this before, but for some reason, this time feels different. After five years of mostly struggles in the industry – particularly here in California – it seems that we are on the verge of “turning the page” and setting on a better course. What happens in the coming days and months will determine whether that actually happens.

Reports indicate that a Farm Bill is close to being completed, perhaps even this month. 

This has been several years in the making, but it appears that we are on the verge of fundamentally reforming our dairy safety net programs. Of course, it doesn’t solve every problem our industry faces, but it solves one of the biggest: providing dairy farmers – both large and small – with a meaningful option to protect against prolonged market downturns.

And if Congress can read through the propaganda constantly churned out by nation’s processors, who’s main goal in this debate has been to keep milk as cheap as possible, we may have a stand-by Market Stabilization Program that helps shorten those market downturns in the first place, which is ultimately the best outcome for our industry.

A Federal Milk Market Order in California appears to be moving forward at a rapid pace. 

Of course, it’s a lengthy process that will certainly not be completed in 2014, but nonetheless, after trying every method possible to get the much needed changes to the California system – whether through administrative hearings, legislation, or even a lawsuit – California dairy families appear to be very focused on going down this path to a Federal Order.

Producers certainly have questions about this process, many of those focused on how it will handle our State quota program or how the pooling rules will be different. While we don’t know all the answers yet, they are certainly all solvable issues, and I expect that the coming months will bring a lot of clarity to this process.

While those two items appear to be on the fast track in the near term, there are other issues that MPC and others will certainly be involved with as well.

It looks like Congress is planning to take a serious look at the nation’s corn-based ethanol policies. 

This is an issue that’s been brewing for years, and with a bipartisan Senate bill introduced late last year and a comparable House bill planned soon, the issue is poised for a serious discussion in 2014. Of course, given the impact this policy has had on feed commodity process, MPC and many others have been involved in this debate for years. 

But more recently, the ethanol policies have grown to a point where it is actually mandating a volume of ethanol that isn’t even feasible to blend with our nation’s fuel supply, given current market conditions. We saw preliminary action by EPA late last year to start correcting this problem, but it’s anticipated that Congress will debate/discuss more fundamental changes in the coming months.

Immigration, as in years past, continues to be on Congress’s agenda as well. 

Last year, we saw significant progress, with the Senate approving a bold, comprehensive plan that includes much needed changes for dairy and other agriculture. However, that effort has been stalled in the House of Representatives, where there seems to be political problems with taking up immigration in a comprehensive manner. They have been saying they prefer a piecemeal approach, dealing with the major immigration issues one-by-one. Given that it’s an election year, it’s tough to know whether a year from now we’ll have seen any progress, but this is certainly an important issue for dairy farmers around the country, and as such is a major priority for us all.

Finally, there is some increasing chatter about tax reform in Congress. 

As I wrote above, given that it’s an election year, I’m not sure how realistic the prospects are, and President Obama recently nominated the chief tax policy writer in the Senate – Sen. Max Baucus from Montana – to serve as the U.S. Ambassador to China. However, one issue that has come up as part of a potential tax reform package is the removal of the “cash-basis accounting” option for the largest farmers. As you all know, cash-basis accounting is a key component of the tax-planning methods used by U.S. farmers, so dairy and other agriculture interests will obviously be closely watching this debate.

While the items above would certainly keep any industry busy all year, we know that this is not an all-inclusive list. Whether it’s a California bill aimed at micro-managing the way farmers care for their animals, or helping to get ready for the implementation of Obamacare (at least the implementation on businesses; I’ve already been forced to get my individual Obamacare plan), there is never a dull moment in this industry. Let’s hope that 2014 brings continues strong dairy markets and at least the first two items above. 

It should go without saying that it’s a whole lot easier to tackle the other items on the agenda if we’ve at least got the tools to help your dairy maintain profitability long-term. And of course without sustained profitability, the other issues are moot anyway.