May 2001
Volume 4, Issue 2

INSIDE THIS ISSUE
Lets set the Record Straight on Mad Cow and Foot and Mouth Disease - E. Oelker
Your Milk Check is Under Attack!  Where are all the Federal Order 33 Pool $$'s Going? - C. Thraen

Let's Set the Record Straight on Mad Cow and Foot and Mouth Disease
Ernie Oelker, Extension Agent
OSU, Columbiana County

Many people seem to be greatly confused about the relationship between mad cow disease (bovine spongiform encephalopathy or BSE), scrapie in sheep, variant Creutzfeldt-Jakob disease and Classic Creutzfeldt-Jakob disease and other transmissible spongiform encephalopathy diseases (TSE’s). Now we have the foot and mouth disease outbreak in United Kingdom and Europe adding to the confusion and heightening the anxiety of consumers in the U.S. Certainly, the current situation could stand further clarification.

Mad Cow Disease (BSE)

MAD COW DISEASE HAS NOT BEEN FOUND IN THE U.S. Mad cow disease is a TSE, thought to have originated from the feeding of animal based feed products such as meat and bone meal contaminated with brain and/or spinal cord tissue to cattle, possibly from sheep carcasses that may have been infected with scrapie. Scrapie is also a TSE that affects sheep and goats, but is not known to affect humans. Mad cow disease is thought to be a "variant" of scrapie and has been linked to a disease in humans, called variant Creutzfeldt-Jakob disease (vCJD). This is a very unfortunate choice of name because variant Creutzfeldt-Jakob disease (vCJD) is not the same as Classic Creutzfeldt-Jakob disease (CJD), although the symptoms are almost identical. People all over the world have died of CJD since 1920. CJD affects people (usually over age 55) randomly, vegetarians and meat-eaters alike. CJD HAS NOT BEEN LINKED TO MAD COW DISEASE. Mad cow is thought to be caused by a type of protein molecule called a prion (not a virus or a bacterium), a causative agent that is very difficult to destroy, but it is not known to be spread directly from animal to animal, or from live animals to humans. This causative agent is not found in the meat of infected animals, only in brain, spinal cord and related tissues.

OFFICIALS DO NOT SUSPECT THE SHEEP HAVE BSE. The flock of sheep in Vermont that were recently seized by the United States Department of Agriculture (USDA) were originally imported from Europe where they were suspected of being exposed to scrapie. The USDA has kept these sheep under quarantine ever since they were brought here, not because they were worried about mad cow disease, but because there was concern about the spread of scrapie to other sheep flocks. These sheep were transported to an animal disease diagnostic laboratory for slaughter so brain tissue could be examined for evidence of scrapie infection.

Foot and Mouth Disease

Now we have an outbreak of foot and mouth disease in the United Kingdom (U.K.) and Europe. Foot and mouth disease is caused by a virus and is highly contagious. FOOT AND MOUTH DISEASE DOES NOT AFFECT HUMANS. It affects cattle, sheep, goats, and hogs. The virus can be carried on the hair of animals, on contaminated clothing, footwear and in uncooked meat or other animal tissues. It can be carried on the wind and can be transmitted by birds. Animals which contract foot and mouth experience abortions, severe weight loss and poor production. Most affected animals do not die. This is an entirely separate disease from mad cow disease, although lots of people are confused about it. News media have added to the confusion, in some cases mistakenly calling the disease in the Vermont sheep, mad cow disease and at other times calling it foot and mouth. FOOT AND MOUTH DISEASE DOES NOT EXIST IN THE U.S. The last case of foot and mouth disease here was in 1929. USDA, Animal Plant Health Inspection Service (APHIS), U.S. Customs Service and state departments of agriculture have instituted aggressive inspection and interdiction programs designed to keep foot and mouth disease out of the U.S. People are being questioned about contact with animals in Europe and the U.K. Luggage is being inspected, footwear is being sanitized and certain animal-related products are being seized.

An outbreak of foot and mouth in the U.S. could be devastating to the American livestock industry. You should have a biosecurity program in place on your farm to allow only essential people to have contact with your stock or facilities. Visitors of unknown origin should be kept away from your livestock and facilities. Anyone who has been to Europe or the U.K. recently, should keep all clothing and footwear completely separate from articles used around their own or other peoples’ livestock until these items are cleaned and sanitized.

Other TSE’s

Chronic wasting disease of mule deer and elk in Western U.S. is also a TSE. Some people fear that it could cause a problem in humans or be somehow transmitted to livestock. APHIS officials will not rule out this possibility. There are five rare TSE diseases of humans (including CJD, vCJD, kuru, Gerstmann-Straussler-Scheinker syndrome and fatal familial insomnia). Animal TSE’s include BSE, scrapie, feline spongiform encephalopathy of cats, chronic wasting disease of elk and mule deer, a TSE of mink and others of captive wild ruminants and monkeys in Europe. So far, none of these animal types, except BSE has been linked to humans.

Other sources of information on BSE, TSE’s and Foot and Mouth Disease:

National Cattleman’s Beef Association’s BSE website:

USDA/APHIS Veterinary Services:

Centers for Disease Control and Prevention:

Food and Drug Administration:

Council for Agricultural Science and Technology:

TSE Report - http://www.cast-science.org/

Your Milk Check is Under Attack!  Where are all the Federal Order 33 Pool $$'s Going?
Cameran Thraen
OSU Extension State Specialist, Marketing and Policy

In this column I am going to address an issue that should be of concern to every dairy farm family in Ohio and the Federal Order 33 marketing area. In fact it should be a great concern to each person who relies on the economic health of the dairy economy in the Mideast Federal Order 33 for their own economic well-being! First, some preliminary background – short (as I can make it) and to the point. In this article I am using published data from the Federal Milk Market Order 33 Administrator Office and freely available at the Federal Order 33 internet website. I am also making a number of calculations that are approximations and are not official numbers from the Federal Order 33 reports.

Question: I have been told that dollars in my milk check are made up of two primary parts, is this correct?

Yes, this is so. In the Mideast Federal Order 33 (and those that value milk on a component basis) milk products distributed throughout the  Mideast geographic take on additional value because of the classified pricing system – pricing milk by how it is used by consumers – Class I and Class II. This value exceeds the value of the milk in its direct component form, valuing milk by how much butterfat, protein and other solids it contains. For example, over the 14 months of January 2000 through February of 2001, the aggregate value of this "pooled" milk was $2.071 billion. Federal order language specifies that this value must be paid back to producers (after some adjustments which I will ignore because they are relatively small net adjustments). To reach this $2.071 billion dollars the amount of milk "pooled" on the Mideast Federal Order was 16.761 billion pounds or $12.76 per hundredweight.  The aggregate value of the milk components shipped by dairy farmers to the Mideast Federal Order was $1.690 billion. Now the way the Federal Order accounting system works is that dairy producers (or their representatives such as Cooperatives) are paid directly for the value of the components. They are paid the $1.690 billion dollars out of a total market value of $2.071 billion dollars. This leaves an excess value (your classified pricing system at work) of $381.7 million, over and above the component value, to be divided equally across all milk in the Mideast pool. This amounts to dividing $381.7 million by 16.761 billion pounds of milk - $2.28 per hundredweight. This dollar amount is what the Federal Order terms the Producer Price Differential (again ignoring some minor adjustments). Now if we take the total pool value of $12.76 and subtract the Producer Price Differential of $2.28 we can determine that the average component value in the Mideast Federal Order 33 over this period has been $10.48. The average dairy farmer whose milk is eligible for pricing under the Federal Order provisions therefore has received his or her revenue from two sources (1) $10.48 as payment for the components that were produced and shipped and (2) $2.28 as payment for his or her share of the "producer pool value" in excess of the component value. Now before reading on, go back and read this paragraph one more time because understanding this arithmetic is critical to understanding why your milk check is under attack!

I thought you would never ask! As a producer of milk components you are paid directly for each pound of component that you produce and ship to market. The aggregate price you receive is determined by the pricing rules of the Federal Order system and these rules are the same and hold for every producer in each of the component-based federal orders. The total revenue you receive in each monthly milk check, for your components, is the product of the announced rate per pound and the total pounds that you ship to market. This revenue is unassailable by anyone in the market and only increases or declines as either you ship (planned or otherwise) more or less product and/or the market valuation for each of the components varies. Each dairy farmer is paid in exactly the same manner for their total value of their components expressed per hundredweight of milk. If, as a producer, you shipped precisely a standard composition of milk components, the value would be the Class III milk price.  This same statement cannot be made for the excess pool value part of your milk check. The size of this revenue pie is determined by how the milk is used after it goes to the plant and is distributed throughout the Federal Order marketing area. This is unique (or used to be) to each Federal Order marketing area. A general rule is that the more milk that is sent out to consumers as Class I or II product, relative to Class III or IV product, the greater the excess pool value. Therefore, those Federal Orders, such as the Mideast Order, with a higher Class I use will have a greater excess pool value than with another Federal Order (such as the Upper Midwest) that has a much lower Class I use.

For any given amount of milk that is pooled on a Federal Order, the greater the excess pool value, then the Producer Price Differential that is paid out to each dairy farmer will be higher. If a producer or their representative can find a way to get milk priced on one Federal Order which has a large excess value rather than on their own Federal Order which has a small excess value, then some of the higher Producer Price Differential revenue can be bled off and returned to these producers or representatives. This process lowers the Producer Price Differential in one Federal Order (ours) and raises it in another. The only thing that prevents this from happening are provisions within each Federal Order’s rules, and unfortunately in Federal Order 33 these rules are not much of a deterrent. Qualifying milk that is not actually needed to satisfy consumer demand on a higher valued Order without actually moving all of the milk is called pool-riding.

We may be a deficit producing area but this is not remedied by pool riding. In pool riding, very little, to almost none of the milk actually arrives in Federal Order 33. In fact, just about all of the milk continues to go to its normal buyers outside of the Mideast Federal Order. The total quantity of new milk only appears to be coming here solely for the purpose of being counted when it comes time to divide up the excess revenue pool.

Question: I think I understand what you are discussing but, how much money are we talking about? Is this really important to my dairy farm income?

That is a very good question and I have put together some numbers that will show you the magnitude and importance of the problem here in the Mideast Federal Order. In Table 1, I will show this and illustrate the size of the Producer Price Differential with pool-riding and without pool-riding and the cost to you in terms of lost revenue on a hundredweight basis. I will take the period September of 2000 through February 2001. I have selected these months because this is when I believe pool-riding has become "pool-raiding" in the Mideast Order. I have put the Class I and Class III utilization in the table to demonstrate that the Mideast Market is now pricing more lower valued Class III milk than Class I milk. Normal use rates would show Class I at 48% - 52% and Class III at 22%-from outside the normal supply area for the Mideast Market Area qualified for "our" pool revenues, you gave away $0.26 per hundredweight to those outside producers or their representatives. By my calculations this increased to $0.85 per cwt. in November of 2000. The average for this six-month time period amounts to $0.60 per cwt. This is revenue that should have stayed in your pocket but was siphoned off to the pockets of producers in areas that do not normally share in your Mideast Area revenue pool. The aggregate cost to producers just in Ohio, based on the reported volume of milk pooled for these six months, is approximately $10 million dollars and will continue to increase! By my estimates the accumulated dollar loss to all non-pool-riding milk producers in the Mideast Market Area is $36.4 million dollars – and increasing each month!

Unfortunately, in the short term there is really nothing that you can do to stop the flow of dollars out of your Mideast order. You may be tempted after looking at the numbers in the last column of the table to conclude that because the amount is declining and only $0.55 per cwt. in February that the process is ending. This is definitely not the situation. As long as extra milk is attached to the Mideast Order solely for the purpose of extracting some of the excess revenue pool, the net result is a reduction in the blend price paid to Mideast producers.  As long as our Producer Price Differential remains relatively large compared to the other orders (i.e. those orders with high class III and low class I utilization) then  this process will continue to bleed dollars from our Federal Order.  The Federal Order language spells out clearly what can be done about this and how to go about making necessary modifications to the Mideast Federal Order. For more information on this issue and what steps can be taken to address the problem, contact the Federal Order 33 Market Administrator Office in Cleveland, Ohio at 440-826-3220 . You can also contact the USDA / Agricultural Marketing Service, Dairy Programs, Richard McKee at 202-720-4392 or email:

Richard.McKee@usda.gov.

Table 1. Milk Pooled, Calculated Pool-riding and PPD in Federal Order 33.

* These are not the same as those reported by the Federal Order Administrator Reports because I have not taken into account a number of adjustments and so these are gross amounts. They are however very close to the reported numbers and can be used to get a good estimate of the dollars.
# These numbers are my calculations and are not official numbers from the Mideast Federal Milk Market Administrators Office. They will be very close to actual numbers.