Federal Milk Marketing Order Hearing Report — Week Six

When I tuned in to the hearing at 5 a.m. Pacific time on Monday morning, I heard a different voice come through my earbuds. Judge Jill Clifton, who had presided over the California FMMO hearing in Clovis in 2017, and whose manner and voice are very distinctive, reported that Judge Channing Strother, who had presided from the beginning of the hearing in August, had come down with COVID and was sick in bed. Judge Clifton is a delightful lady who injects motherly advice, makes encouraging comments (after a cross examination finished, she made the following observation, “excellent questions and the responses were stunning”), and generally seeks to lighten up this long and tedious process that is the FMMO price hearing.

The week was a slog. NMPF introduced proposal 13, which is to return the Class I base price to being set on the “higher of” either Class III or Class IV instead of the current “average of” method. There was a lot of cross examination and rebuttal testimony on the value of hedging and whether Class I can be hedged under a “higher of” scenario. Tim Doelman, a co-founder and current CEO of fairlife, gave very interesting testimony about the history of fairlife, which started in 1998, and also insights into how they created their products and how they market them. He was in favor of keeping an “average of” but was sympathetic to the concern of farmers about missing out on revenue when the “average of” plus 74 cents generate a lower Class I price than the “higher of” would provide. Interestingly IDFA and the Milk Innovation Group, which is also made up of processors, are proposing an “average of” modification that adjusts the 74 cents upward in the future to account for any shortfall the “average of” plus 74 cents creates. There is still the problem that Federal Orders are essentially voluntary for non-Class I milk. The decision to pool or not pool can be made monthly in most orders. Even if, on average, Class I prices can be made to match what the “higher of” formula would produce in revenue, if the “average of” produces a lower Class I price in a particular month, de-pooling is incentivized to the detriment of the system.

There was also testimony from the Wisconsin Cheesemakers about make allowances. They are proposing a big increase. But interestingly to me was the observation by John Umhofer, their executive director, that we needed to establish policy to make sure there was still an incentive to make specialty cheese. I certainly agree with that, but wonder if we raise make allow­­ances to the extent the processors want, won’t making commodity cheese be so profitable that it removes the margin pressure to make higher value cheese?

As usual, on Friday dairy farmers were able to testify virtually. This week two co-op dairy farmer leaders from California were among the 10 dairy farmers to testify. Perry Tjaarda from DFA and Simon Vander Woude, the chairman of the CDI board.

The hearing next week, if it happens (the government may shut down on Saturday night if Congress does not pass a new budget), will be more base Class I price testimony. There are proposals to remove advanced pricing from Class I and II, (both NMPF and IDFA oppose this) as well as proposals to base Class I only off of Class III.  If we get through this topic, then we will move to the last issue for the hearing which is Class I and II differentials. That item will involve dozens of witnesses. So, we are nowhere near the end of this marathon.

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