Speaking of California; DairyBusiness Update’s Dave Natzke reported in Friday’s (March 15) DairyLine that high feed prices in 2012 compounded already difficult times for the Golden State’s dairy producers, still reeling from a collapse of prices in 2009. He references a new report from Rabobank, warning that California’s dairy industry is at a pivotal point in its future.

In their report, titled “California Dairies: Getting More Moola,” Radobank ag Economist Vernon Crowder, and James DeJong, dairy industry analyst, put much of the blame for current problems on the state’s seven-decade-old milk marketing order system.

They say the system has distorted milk prices and revenue distribution, discouraged investment in processing capacity and technology, and encouraged overproduction of milk. And, with prices following the volatility of the Chicago Mercantile Exchange, processors have stayed with staple products, such as non-fat dry milk, butter and cheddar cheese to maintain margins, instead of investing in more innovation that may have put them in better position for export markets.

Due to these factors, the report acknowledged California dairy producers have received an average of $1.50 per cwt., of milk less than their counterparts in the rest of the U.S., with the gap growing in recent years.

The report noted changes to the California dairy industry will take collaboration between producers and processors. But, that relationship has been strained recently with debate over the value of whey in the state’s Class 4b milk pricing formula. And, another debate is shaping up over transportation allowances, with a public hearing scheduled for April 4.

The news isn’t all bad, according to Natzke. The report notes that about 20 percent of California milk production is now exported, and steps are being taken to boost that. However, the report warned that dairy co-ops must do more, and rapidly, concluding that “California’s dairy industry is at a pivotal point.” Complete details are in this week’s DairyBusiness Update or visit www.dairyline.com

DBU also reported that California Dairies, Inc. (CDI), the state’s largest dairy processing cooperative, announced support for dairy producer margin insurance as a stand-alone program, as offered in the Goodlatte/Scott Amendment to the Dairy Security Act. The dairy title of the next farm bill should include risk management tools for dairy producers, CDI said in a press release.

“CDI applauds Congressman Goodlatte, who has taken the time to conceive an alternative program that will allow dairy producers to better manage their margins,” CDI said. “The voluntary program provides a viable safety net for dairy producers without requiring them to be subjected to government-run supply management constraints.”

NMPF, on the other hand, reaffirmed its support for “a better safety net for dairy farmers” at the Federation’s spring meeting this week in Arlington, Va. NMPF expects the Senate Agriculture Committee to begin work on a new farm bill next month and NMPF’s leadership said that “A new, voluntary dairy program known as the Dairy Security Act which combines margin insurance with market stabilization, remains critical to the future of the industry.”

“Our members went through a tough year in 2012, with high feed costs and low milk prices putting the squeeze on farmers across the country,” said Randy Mooney, Chairman of NMPF, and a dairy farmer from Rogersville, Missouri. 

Those high feed prices were a topic from Daily Dairy Report (DDR) analyst, Sara Dorland, also a managing partner in Ceres Dairy Risk Management LLC, in Seattle, Wash., in the March 8 “Daily Dairy Discussion” posted on the DDR website. She reported that USDA’s estimates for ending corn stocks for 2012-13 were unchanged in the latest World Agricultural Supply and Demand Estimates report. Corn imports were raised 25 million pounds and feed demand was increased 100 million bushels versus the prior report, she said, and offsetting the gains were further lower revisions to exports, a decline of 75 million bushels versus last month’s report. 

“Grain traders were not expecting revisions to corn and as such the report was viewed as mildly bullish,” Dorland said. “Corn futures responded to the report by closing higher on the day. Similarly, USDA maintained its soybean balance sheet, which came as a surprise to the trade. Both crush and export demand have been running at a pace that will likely exceed USDA forecasts, so expectations were for at least one of the demand estimates to be revised higher. Soybean futures, in turn, responded by moving lower.” 

Readers with questions or comments for Lee Mielke may write to him in care of this publication.