California milk producers are not happy with the prices they’re receiving for their milk especially when compared with their Federal Order (FO) neighbors. For the second time in three months, California producers asked the California Department of Food & Agriculture (CDFA) to amend the state milk marketing order’s Class 4b milk price formula. A petition requesting a hearing was filed March 2, by Western United Dairymen (WUD), but several producer groups representing nearly 80 percent of California’s milk supply support the action.

At the heart of the issue is the disparity in how whey is valued in federal market orders and California’s State market order formulas.

That whey value factors into the price paid to farmers for milk used in cheese production. In the FO, that’s considered Class III milk and in California, it’s Class 4b milk.

Dairy Profit Weekly (DPR) reports that FO formulas attempt to capture the full value of whey in determining the milk price paid to producers. As the result of a hearing held last summer, CDFA modified the Class 4b whey factor, from a permanent 25 cents per cwt. to an adjustable rate between 25 and 65 cents. However, demand for whey has driven values above the 65 cent cap, resulting in a growing disparity in FO and California cheese milk prices, which I have regularly reported here.

Case in point; the February 2012 FO Class III price was $16.06 per cwt. The California 4b price was $13.42, $2.64 below the FO price. Since September 2011, the FO Class III averaged $18.01 per cwt. while California’s 4b price averaged just $15.35, according to DPW.

The Milk Producers Council’s Rob Vandenheuvel wrote in his March 2 newsletter, “This is just the latest evidence of a disturbing and outrageous trend.” He said California’s 4b price has trailed the FO Class III price by an average $2.66 per cwt. since the new formula was put in place in September 2011.

California dairy farmers have sold more than 1.4 billion pounds of milk per month in that time period to cheese plants and those plants have “enjoyed a discount, courtesy of CDFA, of more than $37 million per month on milk they’ve bought the past six months and more than $220 million since September.” 

That, he said, is “directly at the expense of the roughly 1,700 dairy farmers who desperately need all the revenue available in order to operate in this high-cost environment of dairy farming.” He added, “This is about a government-mandated discounting of milk that could be the difference between individual dairies surviving or having to close down.”

“It’s about a fleecing of the California dairy families that appears to be in direct conflict with the California law that states that our prices need to be in a “reasonable and sound economic relationship with the national value of manufactured milk products.”

Meanwhile, milk continues to run into the churn and the dryer across the United States January butter production hit a whopping 181 million pounds, up 14.9 million pounds or 9 percent from December and 14.2 million or 8.5 percent above January 2011, according to USDA’s latest Dairy Products report. Nonfat dry milk output totaled 152.9 million pounds, up 1.8 percent from December and 30.6 percent more than a year ago.

American type cheese, at 370.6 million pounds, was up slightly from December and 3.1 percent above a year ago. Total cheese output hit 912.3 million, down 1.9 percent from December but 2.9 percent above a year ago.

Cash cheese prices saw another week of strength the week of March 5, with the blocks closing that Friday at $1.4925 per pound, up 1.25 cents on the week, but 52.25 cents below a year ago. The barrels closed at $1.5025, up 2.25 cents on the week and 46.25 cents below a year ago. Nine cars of block traded hands on the week and seven of barrel. The NASS-surveyed U.S. average block price fell to $1.4873, down 0.7 cent, while the barrels averaged $1.5066, down 0.8 cent.

Plentiful milk supplies are resulting in increased manufacturing of cheese, according to USDA’s Dairy Market News. Seasonal cheese plants in the Southeast are being utilized to assist in handling of milk supplies that would typically have ended up in the Midwest.

Butter closed March 9 at $1.45, unchanged on the week, but 67 cents below a year ago. No butter was sold. NASS butter averaged $1.4242, up a half cent.

Churning schedules remain heavy in all regions with cream supplies available and clearing to churns. There has been an uptick in cream utilization in higher-class products such as cream cheese, sour cream, dips and similar items, as orders are prepared for upcoming retail and foodservice needs for the Easter and Passover holidays. Trade sources indicate that the current butter price is working better for featuring print butter at retail versus the price ($2.02) a year ago.

Manufacturers are making and clearing 82 percent butter for export needs and cream demand is appearing from ice cream manufacturers on a limited scale.

Cash Grade A nonfat dry milk dropped 2 cents on the week, closing at $1.2675. Extra Grade was also down 2 and closed at $1.2575. NASS powder averaged $1.3647, down 0.3 cent, and dry whey averaged 60.59 cents, down a half-cent.

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.