CDFA announces small price boost, likely adding fuel for California FMMO

By Dave Natzke

 

California Ag Secretary Karen Ross announced temporary minimum milk pricing formula adjustments on June 21, resulting in an estimated 12.5¢/cwt. increase in the milk price paid to the state’s dairy producers for the period of July 1 through Dec. 31, 2013.

The decision followed a May 20 hearing on proposals to provide additional temporary price relief to California dairy producers. Formula adjustments for the period February-May 2013 had boosted the state’s milk price by about 25¢/cwt., but those changes expired at the end of May. 

The decision by Ross overruled a California Department of Food & Agriculture (CDFA) panel recommendation that no adjustment be granted. Instead, she reinstituted the adjustments, but at about half the previous rate. The adjustments, effective July 1, include:

• Increasing the Class 1 milk fat price by 0.03¢/lb.; the Class 1 milk solids-not-fat price by 0.23¢/lb.; and the Class 1 milk fluid carrier price by 0.01¢/lb., for a total impact of adding about 3¢/cwt. to the Class 1 price.

• Increasing the Class 2 and 3 milk fat and milk solids-not-fat price by 0.41¢/lb., with the impact of boosting the Class 2/3 prices by about 5¢/cwt.

• Increasing the Class 4a and 4b milk fat and milk solids-not-fat price by 1.23¢/lb., with the impact of boosting the Class 4a/4b prices by about 15¢/cwt.

On average, these adjustments will increase the monthly pool prices about 12.5¢/cwt. for the period of July 1-Dec. 31, 2013.

 

Panel recommendation

In making a recommendation for no price adjustments, the CDFA panel’s report said dairy producer income margins had improved from early 2012.

“Although corn feed costs continued to be at historic levels through the end of 2012, improved milk prices were sufficient to push margins positive once again,” the report said. 

In addition, the panel said the state’s milk supply appeared to be in balance with demand, and that there was a lack of concrete data indicating a need for another temporary price increase.

 

Ross letter

In a letter to industry stakeholders accompanying the price adjustment announcement, Ross said economic uncertainty and questions about the stability of the market warranted the increase. However, she repeated her belief boosting milk prices paid to producers was not a way to address ongoing difficulties.

“We must work together to create a new system to allow producers to improve margins by being responsive to market signals, to provide incentives for the construction of additional processing capacity, and to encourage the production and marketing of new innovative products that add value to milk,” she said.  

To review the May 20 hearing testimony, panel report, the letter from Ross and announced price formula adjustments, visit http://cdfa.ca.gov/dairy/uploader/postings/hearings/

 

California federal order

The smaller adjustment almost certainly means California dairy producer organizations – which had supported proposed temporary state price formula adjustments which would have added about $1.20/cwt. – will move forward with efforts to create a California order within the federal milk marketing order (FMMO) system. A new report indicates the state’s dairy producers could benefit from such a move. 

Members of three major dairy cooperatives, producing about 80% of California’s milk, commissioned a study last winter to see if the state’s dairy producers should join the FMMO system as a means to improve milk prices. Results of that study – commissioned by California Dairies, Inc. (CDI), Dairy Farmers of America, Inc. (DFA) and Land O’Lakes (LOL) – are now in, but not yet provided in detail.

The findings of a five-month study – conducted by Dr. Mark Stephenson, University of Wisconsin-Madison, and Dr. Chuck Nicholson, Penn State University – indicate a properly written FMMO for California would benefit the state’s dairy  families by providing a regulatory structure potentially resulting in higher producer milk prices, according to Marie teVelde, CDI director of communications. 

CDI, DFA and LOL will hold a series of explanatory sessions for its members to share the results and receive input on how best to move forward on possible implementation. Staff from the three co-ops will also begin to draft federal order language to initiate the process. 

Creating a federal order is a complex and lengthy process, requiring petitioning of the USDA, scheduling and conducting hearings and, ultimately, putting it to a producer vote, which would require a two-thirds majority vote for implementation. 

One piece of enabling legislation has already been introduced in Congress. U.S. Rep. David Valadao (R-Calif.) introduced H.R. 1396, the “California Federal Milk Marketing Order Act,” which would provide California dairy producers with additional options as they consider joining the FMMO system. Specifically, it would give an order covering California the right to reblend and distribute order receipts to recognize quota value.

Some estimate the timetable for creating a California federal order could take a minimum of 14 months, but producer groups may have given up waiting on CDFA.

In her letter to industry stakeholders, even state Ag Secretary Ross hinted that a federal order might be an appropriate route to pursue by a state dairy task force she created last year.

The industry is being compelled to engage these issues in the California Dairy Future Task Force, the Legislature, and, potentially, the Federal Milk Marketing Order,” she said. “The Department stands ready to participate in any forum that presents an opportunity to ensure the long-term stability of the California dairy industry, but I strongly believe that the Task Force is the best process for bringing producers and processors together to achieve this goal.”