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Financial help: Farmers seek solution as negative PPDs hit during pandemic
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The global coronavirus pandemic brought much uncertainty to the dairy industry.

Shutdowns at the onset of the pandemic caused milk prices to plunge and oversupply issues led to farmers disposing of milk. Then changes in consumer buying habits led to improving milk prices as more dairy products were being used for at-home cooking.

However, even during the months when milk prices looked good last year, many dairy farmers didn’t see the full benefit of those improved prices come through on their milk checks.

Negative producer price differentials have been pulling down the prices farmers are paid for their Class III milk. According to the American Farm Bureau Federation, negative PPDs cost U.S. dairy farmers more than $3 billion in 2020.

About 75% of total U.S. milk production is covered under the Federal Milk Marketing Order program, which is overseen by the U.S. Department of Agriculture. FMMOs establish minimum prices paid to farmers through a process of collecting dairy commodity market prices, determining handler prices based on end-use, and establishing minimum uniform prices through pooling, according to the USDA Agricultural Marketing Service.

The Federal Milk Marketing Order system of “pricing and pooling” is done monthly. Pricing is basically about the way that money is collected from dairy plants and pooling is the method of paying those funds out to dairy producers, according to “Making Sense of Your Milk Price in the Pandemic Economy: Negative PPDs, Depooling, and Reblending,” an informational letter by Mark Stephenson, director of the Wisconsin Center for Dairy Profitability at UW-Madison, and Andrew Novakovic, professor emeritus of agricultural economics emeritus at Cornell University.

Milk pricing establishes a minimum price that must be paid for milk depending on what products are made from it. It is a floor price, and premiums are often paid above those levels, Stephenson and Novakovic said.

The four uniform “classes” throughout the FMMO system are Class I, fluid milk; Class II, which is milk used to make soft products like ice cream, cottage cheese and yogurt; Class III, which is milk used to make hard cheese products; and Class IV, milk used to make butter and powdered dry milk products.

Producer price differentials are determined based on the spread of the various milk class prices in a given month, Stephenson said during his “Pandemic, Prices and PPDs … What will 2021 Offer?” presentation at an October UW-Extension Dairy Market and Nutrition Update webinar. When milk is pooled, Stephenson said, the PPD becomes negative during scenarios where the Class III price rises too fast, as it did in June and July of 2020, or when the spread between Classes I, III and IV prices gets wider.

A negative PPD on a farmer’s milk check means the pool doesn’t have enough money from processor payments to pay all pooled milk at Class III component values.

“Under more ordinary price relationships and movements, negative PPDs and depooling are not as common an occurrence. But, a pandemic is anything but common,” Stephenson and Novakovic wrote in their informational letter.

“The addition of cooperative pricing plans to discriminate prices for farms that are increasing production more rapidly is yet another factor that is causing turbulence in month-to-month milk prices, as well as substantial differences from one farm to the next.”

The difference between the Class III milk price and other prices of milk reached record-highs in 2020. In June, the Class III milk price was $21.04 per hundredweight, more than $9.60 per hundredweight higher than the base Class I milk price. In July, the price difference between Class III, which hit $24.54, and IV was nearly $11 per hundredweight, according to the American Farm Bureau Federation.

Because of those price differences, negative PPDs offset the Class III price in some dairy farmers’ milk checks by $5 to $7 per hundredweight at times in 2020.

“Do you want to know how much year to date negative PPD alone has impacted just me and my farm?” one farmer wrote as part of an email to The Country Today in December. “Over $75,000 PPD impact, and I’m about to take another $5/hundredweight hit on November’s final milk check.”

Stephenson during a Jan. 11 presentation of “Pandemic, prices, and PPDs ... What will 2021 offer?” Hoard’s Dairyman webinar said negative producer price differentials are likely to continue in at least the early part of 2021 mostly due to the big difference between Class III and IV prices.

“I’m still forecasting negative PPDs, but not nearly as bad for 2021,” he said. “Especially in January, during that time period right now with the current futures markets it’s suggesting we would have a negative PPD. If we get a fair amount of de-pooling, it will be even more negative and could be up to $3 or $4 negative PPD in January. But after that it starts to dwindle and we may not see much of a negative PPD at all.”

A poll Stephenson took during the Hoard’s Dairyman webinar showed an interest among participants in addressing PPD issues but a stronger interest in more thorough FMMO overhaul. He said changes to Federal Milk Marketing Orders are complex and there may be no easy way to only address one issue without causing problems somewhere else within the FMMOs.

“If they announced next month that we’re going to have a federal order hearing, and it was going to be a broad-based hearing — because we’ve got a bunch of issues that need to be looked at and not just negative PPDs — it will take years for that hearing to take place, to hear everything that needs to be heard, to have the Agricultural Marketing Service go back into a huddle and come up with a recommended decision before we vote on it,” Stephenson said. “It’s not going to be a short-term process. There are a few things we could probably do quickly, but I’m also afraid that just addressing one small piece of a federal order system is only going to cause additional problems in other areas.

“I think we have to look at it as an entire system of regulation and rules.”

Tony and Peggy Knorn of Junion Homestead Farm in Casco are part of a group of farmers from across the country hoping to see changes to Federal Milk Marketing Orders to address milk pricing provisions and pooling rules.

“Milk produced on my farm can be used for bottle, cheese, powder, or anything milk is made into,” Tony and Peggy Knorn said in an email sent to The Country Today. “We should not be penalized because one plant makes something that has a lower price. It is up to the plant to decide what they make.”

The Knorns run a 250 cow milking herd. They said PPDs cost them more than $100,000 in 2020.

According to examples from the American Farm Bureau Federation, assuming a national average milk yield per cow of nearly 12,000 pounds of milk produced from June to November, a 200-cow dairy in western Pennsylvania would have experienced PPD milk check “deductions” of nearly $130,000, and for a 3,000-cow dairy operation in California, the negative PPDs would represent milk check deductions of more than $2.5 million.

“As a producer we do not have a say on how our milk is priced. There needs to be a change for the better, we have to be able to make a living,” the Knorns wrote. “We are a fifth generation farm established in 1868, it is hard to encourage the next generation to continue when there is such variables in the milk price all the time.”


Writers-notebook
SAWDUST STORIES
This won't hurt a bit
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Linda Keepers is out for blood, and she’s not taking no for an answer.

Trust me, I tried.

For a year or so, most every time Linda and I crossed paths around the neighborhood, I devised one excuse or another why I couldn’t contribute to her biannual blood drive at Lake Street United Methodist Church. Most of my excuses were true; namely, that my harried schedule hardly allowed me the time it would take to squeeze out a pint full of blood. But the real source of my hesitancy had less to do with the numbers on a clock than the prospect of a needle in my arm. The needle prick wasn’t the issue — throughout my college years, I was a regular donor (free food went a long way in those days) — though after a dizzy spell left me seeing stars, I’d placed myself on blood-giving hiatus.

I figured there was no shortage of humans with blood coursing through their veins, and surely, someone else could take a turn.

But then I met Linda, who kindly suggested that I might take another turn myself.

One of these days, I always agreed noncommittally.

Those days would come sooner than I thought.

In the summer of 2020, Linda took her case directly to my doorstep.

“Linda,” I said, opening the door. “What a pleasant ... surprise.”

After my hemming and hawing got me nowhere, I conceded to her request.

Weeks later, upon entering the Lake Street United blood bank at my appointed time, I scanned the room to discover what felt like half our neighborhood was there.

There was Christina, and Randy, and the women with the black dog who lives just down the way. I smiled at our unexpected block party. Linda had convinced us all.

The process went so smoothly that the phlebotomist barely had time to bag my blood before I signed up for a December slot.

Blame it on the endorphins, or the blood loss, or the unexpected neighborhood camaraderie — whatever the reason, I was hooked.

Linda, by contrast, has been hooked for nearly half a century. She began giving blood in her early 20s, and at last count, has donated more than 15 gallons.

Which equals out to 120 pints, 60 quarts, 1,920 fluid ounces, or — for context — enough blood to fill half a bathtub.

Though perhaps the best measure is in terms of lives saved. As hard as it is to believe, a single pint of blood can save up to three lives, meaning that Linda has potentially saved the lives of over 360 strangers. Strangers who suffered car crashes, and surgeries, and cancer treatments, and who needed a donor like Linda to live.

And that number doesn’t include the many donors, like me, who Linda’s recruited over the years. On average, Linda receives approximately 71 pints of donated blood per drive. When multiplied by the seven drives Linda’s overseen — then multiplied again by the three-lives-per pint ratio — the grand total of potential lives saved clocks closer to 1,491.

But Linda isn’t keeping score.

Though she’s always been a loyal donor, it wasn’t until 2017 or so that she agreed to oversee the Lake Street Church drives. Her longtime friend, Kathi Jewell, had overseen the blood drives for years. When Kathi stepped down for health reasons, she encouraged Linda to take over. With the help of her legion of volunteers, Linda has carried on her friend’s cause ever since.

During the December blood drive, I returned, once more, to Lake Street. And once more, my donation could not have gone smoother. Scanning the room, this time I struck upon a different observation: it appeared as if I was the youngest donor by a good 20 years.

Where, I wondered, were all the 30-somethings?

As my phlebotomist checked my arm, I began to grouse about my fellow Gen Y-ers.

“Oh, your generation’s not so bad,” she assured me. While college students and retirees were, indeed, the most generous donors, the folks in my age bracket were doing their best.

“It’s hard,” the phlebotomist said. “People your age are often pretty busy with their kids and jobs. I get it. But during COVID, a lot of young parents like you have really come through in a big way.”

“Really?” I asked, surprised.

“It might not be entirely selfless ...” she said.

“What do you mean?”

“For one, they probably want to be tested for COVID antibodies,” she explained, “which we do when you give blood. But also,” she continued, “I’ve had more than a few parents tell me, and I quote, ‘If I don’t get out of this house, I might just kill my kids.’”

“Well,” I said, “I guess giving blood really does save lives!”

She smiled.

Moments later, the phlebotomist withdrew the needle from my arm, then pointed me toward the canteen.

This was my reward: an endless array of junk food, which I would be forced to consume under the auspices of “replenishing folic acid.” In the days before COVID, the smorgasbord also included various sandwiches, veggies, fruit, cookies and curds. “It’s the only place in town,” a donor once told Linda, “where you can give a pint of blood and gain three pounds.” I seemed to be on a similar path toward weight gain, helping myself to a bag of chips, a granola bar, and a fruit punch to wash it all down.

Maybe, I thought as I tossed my chip bag into the trash, I’m still doing it for the free food...

Linda has more noble motives. She donates because it’s the simplest way she knows to save a life. Not only that, but for her, it’s a faith-affirming act.

“Isn’t helping people what being a Christian is all about?” she asked me. “It’s the same for other religions, too.”

Giving blood, she explained, is a way to give generously, and it doesn’t cost you a thing.

I like the sound of it, and the sentiment, too. How sometimes even the smallest acts can make a big difference.

No sooner did I finish my granola bar than I was accosted by the volunteer behind the canteen.

“Excuse me,” she said kindly, reaching for her clipboard, “have we signed you up for the next drive?”

I smiled, stepped forward, and followed my blood-filled heart.


Politics-policy
top story
Former ag secretary-designee brings experience to Senate

A little more than a year after being rejected by the state Senate as head of the Department of Agriculture, Trade and Consumer Protection, Brad Pfaff has joined the legislative body himself as the newest senator for the state’s 32nd Senate District.

Pfaff, a Democrat from Onalaska, defeated Republican Dan Kapanke by earning 50.3% of the vote this fall and was sworn in on Jan. 4. The 32nd Senate District includes all of La Crosse and Crawford counties, almost all of Vernon County and part of Monroe County in western Wisconsin.

Pfaff said he believes that his background, including but not limited to his time with DATCP, has prepared him well to help address agricultural issues and “bridge the rural-urban divide.”

While with DATCP, Pfaff said he was able to travel and meet the men, women and families who are behind the state’s family farms and hear their stories. As a state senator, he said it will still be important for him to continue hearing those stories.

Outside of DATCP, Pfaff brings additional experience with agriculture and politics in that he grew up on a northern La Crosse County dairy farm, worked for U.S. Rep. Ron Kind, was Wisconsin state executive director for the U.S. Department of Agriculture’s Farm Service Agency, and served nationally as deputy administrator for farm programs during former president Barack Obama’s administration.

After the state Senate refused to confirm Pfaff to lead DATCP in November 2019, thereby removing him from his position, Pfaff was hired as director of business and rural development for the Wisconsin Department of Administration.

Making the choice to run for office in the latest election cycle “wasn’t an easy decision,” Pfaff said. But after receiving phone calls from community members, neighbors, friends and family urging to him to run, Pfaff threw his name in the hat for the seat previously held by Jennifer Shilling, who resigned months before her term ended.

Being a candidate during the time of COVID-19 had its challenges, Pfaff said, but now not only is Pfaff taking his experience working with the agricultural community to the Senate at large, but he is also serving as ranking member on the Senate Agriculture and Tourism Committee.

Pfaff said that he’s excited about the role and that he has already reached out to Sen. Joan Ballweg, who chairs the committee.

Issues don’t necessarily fit within a single committee, though, Pfaff said, and getting things accomplished will require more expansive communication.

Pfaff, while leading DATCP, did publicly criticize Republican lawmakers in July 2019 over the Legislature’s Joint Finance Committee’s failure to release $200,000 in funds dedicated for farmer mental health, and in turn, Pfaff received criticism from some Republican legislators for bringing politics into the department before his nomination was rejected months later. But Pfaff said that now he looks forward to the opportunity to work with all members of the Legislature and hoped that partisan differences could be set aside in favor of civility and respect.

“We’re going to disagree, but it doesn’t mean we have to be so disagreeable,” he said

Health care — for both physical and mental health — for farmers and rural residents is one thing Pfaff said he hopes he can work to help provide.

Pfaff said that during his time at DATCP, he stood in dairy barns, cheese parlors and diners and heard stories that indicated “tremendous anxiety in the countryside.”

He said that rural residents deserved to be heard and respected, especially as many expressed that they didn’t feel that they had “control of their own destiny.”

Listening and trying to learn what is leading to the anxiety in rural areas should be a priority for legislators, Pfaff said, and he vowed to advocate for farmer and rural health care during his time in his office.

Pfaff said that he was also excited about Gov. Tony Evers’ remarks during the State of the State address last week, especially regarding Evers’ comments about broadband in the state.

Evers declared 2021 to be the “Year of Broadband Access” and said that his next state budget will include nearly $200 million to improve broadband.

“That is absolutely phenomenal,” Pfaff said of the funding proposal, noting that broadband has become a necessity.

Among other priorities for Pfaff is finding new markets for Wisconsin agricultural products and expanding the agricultural supply chain to be “diversified” and “robust.”

Finding and developing new products is also something that could help farmers. For example, Wisconsin already produces more than 500 types of cheese, Pfaff said, but there’s the potential for even more.

Adding more processing and logistics would also provide good jobs for rural Wisconsin, Pfaff said.

Land conservation and keeping soil intact is also “very important,” Pfaff said. The district that Pfaff represents is included in the Driftless Area, and the geographic makeup of the area is an asset, he said.

Pfaff thanked farmers for the important work that they’re doing and encouraged constituents to stay in touch and to write, call or email his office with any comments or concerns.

Pfaff said that from his experience growing up on a farm, he recognizes the values of hard work, dedication and coming together during tough times that are common among farmers and in rural communities. In his new role as state senator, he said he aims to do his best to represent those groups.


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