Mielke Market Weekly 

 

The California Department of Food and Agriculture announced Friday that it will amend the state’s Class 4b cheese milk pricing formula, as a result of testimony given at a June 3, 2015, milk pricing hearing. The formula is in effect Aug. 1, 2015, through July 31, 2016. The current dry whey scale will be modified to increase the dry whey factor. 

Had these changes been in effect from April 2010 to March 2015, the department stated, the effect would have resulted in a five-year monthly average increase of $1.01 per cwt. in the Class 4b price and 46 cents per cwt. in Quota and Overbase prices. 

Western United Dairymen (WUD) said it was encouraged by the secretary’s actions and “are appreciative of the intensive effort by the CDFA to listen and respond to the industry and act accordingly,” said WUD President Frank Mendonsa. “While we had hoped for more, we will continue to work closely with the Department to be more consistent with the Federal order.” 

WUD reported that, “In her letter, the Secretary said she believes California’s system of regulated milk pricing is antiquated and outdated. The industry competes within national and international markets that have dramatically changed since the pricing system was established. She added the pricing system needs to be updated to provide the opportunity for our dairy families and processors to achieve long-term growth and prosperity.” 

In her announcement, Secretary Ross said, “I believe this adjustment will provide a needed increase in revenue to producers to ensure a stable milk supply. I have taken this action even though I believe there are long term structural challenges within the dairy industry that the Department cannot address through changes in the class pricing formulas.” 

The Milk Producers Council’s Rob Vandenheuvel wrote in his newsletter that CDFA took a significant bite into what he has referred to as “the California Discount (difference between California 4b milk price and the Federal order Class III price), albeit on a temporary basis.” He said Ross’ action brings the two “in much closer alignment” but doesn’t equalize them.

“Regardless of what our cheese making colleagues might think or say about this Class 4b price increase, they will still be benefiting from a lower regulated price than exists anywhere else in the country,” Vandenheuvel wrote, but he warned, “The changes in the Class 4b formula are related to how the market price for dry whey is incorporated into the milk price calculation. So looking forward, if the CME futures markets are any indication, the dry whey markets are expected to be at or below their current levels for the foreseeable future. Plugging in those dry whey prices into this new Class 4b calculation indicates that our Class 4b price on average over the next year should be roughly 50 cents per cwt. below the Federal Order Class III price.” 

He adds that “The gap between these prices will likely vary from month to month due to other differences between the two formulas, so this is a long-term average estimate. While this represents a continued discount, it is a far cry from the $1.84 per cwt. average monthly California Discount we’ve seen since 2010,” and he promoted the effort to establish a Federal order in California.

According to Vandenheuvel, 45 percent of California’s milk goes into cheese, and the California 4b price has lagged the Federal order Class III price by $2-$2.50 per cwt. the last five years. That amounts to about $1.8 billion lost by dairy producers, he said, a significant amount of money that California cheese makers have not had to pay for milk. This ruling will reduce the average shortfall to about 50 cents per cwt., he said, adding that he hopes USDA will soon announce a Federal order hearing.

USDA announced the August Federal order Class I base milk price is $16.28 per cwt, down 25 cents from July, $7.59 below August 2014, and the lowest August Class I since 2010. The price equates to about $1.40 per gallon, down from $1.42 last month and $2.05 a year ago. The eight-month average stands at $16.33, down from $23.13 a year ago and $18.39 in 2013.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.