Dairy farmers to see temporary milk price change


Issue Date: July 22, 2015
By Ching Lee
Dairy Cows

Starting next month, California dairy farmers will earn more money for milk used to make cheese, as a result of a temporary change in the state milk pricing formula that calculates the value of dry whey.

The California Department of Food and Agriculture ordered the change, which will be in effect for one year, after a hearing in June that focused on how the cheese-making byproduct, or Class 4b milk, should be priced.

Dairy farmers have long contended that the state whey price should be higher and comparable to the value paid under the federal milk marketing order. Changes to the formula will now bring the state 4b price closer to the federal order price. Some dairy leaders say the hearing decision is also recognition by the department that the two prices are not in alignment.

"We are pleased with the decision," said Frank Mendonsa, a Tulare County dairy farmer and president of Western United Dairymen, adding that "while we had hoped for more," the price increase is "going to give the California dairyman a little bit of help."

Specifically, CDFA tweaked the dry-whey scale used to determine the whey-factor value in 4b pricing, first by changing the current sliding scale for the whey value from five-cent steps to three-cent steps. However, CDFA Secretary Karen Ross departed from a hearing panel's recommendation on the whey-factor values and the cap of the whey scale. She chose to cap it at $2 per hundredweight rather than the $1.55 per cwt. recommended by the panel. The current whey ceiling is at 75 cents per cwt.

Ross said the increases she ordered are "necessary to assist producers in dealing with increased costs of production and the effect of the ongoing drought."

Had the new formula been in place during the last five years, it would have raised the monthly average 4b price by $1.01 per cwt. and the pool price by 46 cents per cwt.

The formula producer groups proposed would have generated an additional $1.46 per cwt. to the 4b price and 67 cents per cwt. to the pool price.

The short-term impact of the change, said Annie AcMoody, director of economic analysis for Western United Dairymen, is that there's potential for producers to earn an extra 62.25 cents per cwt. in the 4b price starting next month, if the market price for dry whey remains at last week's 39 cents a pound. The new dry-whey scale would generate $1.06 per cwt. to the 4b formula whereas, under the old scale, the formula generated 43.75 cents per cwt. The smaller, three-cent steps in the scale also allow prices to move more quickly, she added.

The Dairy Institute of California, which represents processors, proposed a pricing formula—to be in place for six months—that would have raised the monthly average 4b price by 41 cents per cwt. and the pool price by 19 cents per cwt. during the last five years. Instead of basing the whey value on the monthly average price of dry whey as it is now, processors proposed using the weekly "Central and West 34 percent Whey Protein Concentrate-Mostly" prices published by the U.S. Department of Agriculture. The Dairy Institute says California cheese plants are increasingly selling liquid whey, not dry whey, and that the whey protein concentrate price is more appropriate as a benchmark.

But CDFA said while this concept "appears to have merit," such a change "requires further vetting in order to appropriately implement it in the future, if found suitable."

In response to the hearing decision, Dairy Institute Executive Director Rachel Kaldor said the organization remains "extremely concerned that unless prices stay in the lower end of this new dry whey scale while it is in effect, a significant number of small California cheese plants will go out of business."

She added that using the current dry-whey scale "can overvalue the price of milk California processors have to pay, hurting their ability to compete, which ultimately hurts everyone."

In her letter to dairy stakeholders, Ross said even though she ordered the adjustments in order to provide more revenue to producers "to ensure a stable milk supply," she restated her concern that "there are long-term structural challenges within the dairy industry that the department cannot address through changes in the class pricing formula."

The letter said she plans to contact those in the dairy business later this year "to collaboratively work towards implementing appropriate reforms to our pricing system."

Meanwhile, producers and processors continue to await word from USDA on whether it will hold a hearing to consider establishing a federal milk marketing order for California.

Mendonsa said he expects USDA will call the hearing in September. But with the hearing process anticipated to last two years and the temporary changes to the state price good for one year, he said producers must continue to work with CDFA on fixing the state milk pricing system.

Lynne McBride, executive director of the California Dairy Campaign, said producer representation in any milk-pricing discussions is important, but she said those meetings, such as with Ross' dairy future task force, never yielded solutions to adequately address the 4b pricing disparity.

"We've been down that road before," she said, "and at the end of the day, there just was no way to forge a consensus on what would be a more-fair price for 4b."

She said her group still believes "the only way to restore equity in the long term is by joining the federal order system."

Rob Vandenheuvel, general manager of the Milk Producers Council, said his group would also continue to press for a California federal milk marketing order.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.