Speaking of California, the Western United Dairymen’s (WUD) recent petition for an emergency hearing on California’s Class 4b milk pricing formula and a six-month, 50 cent per cwt. increase in the minimum price for all classes of milk has drawn responses from dairy producers and processors. Dairy Profit Weekly reports that on August 6, WUD petitioned the California Department of Food and Agriculture (CDFA), asking for an emergency hearing on two proposals. 

First is emergency price relief due to the current financial pressures on dairy producers, notably due to extremely high feed costs. WUD is requesting a six-month (October 2012 through March 2013) increase of 50 cents per cwt. on the minimum milk prices for all classes of milk. 

Second they seek changes to the whey value of the 4b pricing formula. WUD is requesting the cap of 75 cents per cwt. to be removed, proposing a scale that mirrors more closely the whey value under the Federal milk marketing order Class III milk pricing formula. Both the Class 4b and Class III milk pricing formulas are used for milk processed into cheese.

In a move to address concerns of small cheese makers, WUD proposed a dry whey exemption on the first 100,000 pounds of milk processed daily and would be only on the whey portion of the Class 4b formula.

You’ll recall that, following a May 31-June 1 hearing, a CDFA panel recommended no change in the state’s 4b pricing formula whey factor. However, CDFA secretary Karen Ross gave dairy producers a small concession, increasing the whey factor cap by 10 cents per cwt., effective August 1. She also announced creation of a California Dairy Future Task Force, charged with developing recommendations for structural changes to California’s dairy pricing formulas and other milk marketing regulations.

In a letter to Ross, Joe Augusto, president of the California Dairy Campaign (CDC), urged CDFA to schedule the emergency hearing, saying the previous decision failed to address the immediate needs of dairy producers.

“The decision that resulted from the 4b hearing this spring failed to restore equity to our dairy pricing system,” Augusto wrote. “California dairy producers continue to be paid significantly less than dairy producers in surrounding states. The fact that the 4b formula undervalues milk has led to a loss in revenue of more than $200,000 for the average 1,000-head dairy in our state over the last 12 months.” 

“To restore equity to our dairy pricing system, our dairy producer members believe California should join the Federal milk marketing order. To address the inequity in our state dairy pricing system, we believe it is imperative that CDFA remove the cap on the whey value in the 4b formula as called for in the petition.” 

“Already this year, more than 65 dairies have closed their doors due to the fact that dairy producer prices do not cover historically high production costs,” he continued. “In 2009, the worst year many can recall, 100 dairies closed their doors. If closures continue at this rapid pace, 2012 will take an even greater toll on dairy producers if action is not taken by CDFA to restore fairness and equity to our dairy pricing system.” 

“Dairy producers are unable to pass on record high feed costs that have resulted from the nationwide drought so it is critical that CDFA take emergency action to raise the price of all classes of milk to prevent more dairies from closing.”

Reis Soares, Soares Dairy, Chowchilla, Calif. also wrote in support of the petition, pleading for CDFA to consider WUD’s petition for an emergency hearing stating; “I am a first-generation dairy producer and have been dairying for 28 years. Dairying in 2009 was about as devastating as I could have ever imagined until 2012. I don’t have to tell you what has happened to our grain/feed costs, as you are fully aware of the nation’s worst drought in decades. In 2009, I borrowed on our farm in order to be able to feed our cattle. I refinanced our farm for more than what I originally paid for it just to stay in business. I guess you can say I bought our farm twice now. The equity of our farm is gone; the equity in our cattle is gone; so we have nothing left to borrow on.”

“I don’t understand how CDFA can allow this much injustice to continue,” Soares added. “The dairy producer pays for the processors’ cost of operating. The dairy producer pays the full cost of producing and hauling the milk to the processor. The processor is able to sell the finished product at a profit, yet they don’t have to share with the dairy producer.” 

“I believe your conclusion in the most recent hearing decision that the industry should seek structural changes in dairy pricing to establish a more stable foundation for the future was judicious and should be followed through,” he said. “However, in the meantime, how many more dairies will be lost in California and how many more years will dairy producers have to endure instability before CDFA takes responsibility.”

To no surprise, processors disagree. David Ahlem, vice president, dairy procurement and policy, Hilmar Cheese Company, asked CDFA to deny the petition.

“Considering another change to the 4b minimum price only weeks after the announcement of the May 31/June 1, 2012 hearing outcome will further perpetuate regulatory uncertainty in the state,” he wrote. “This constantly changing business climate will do little to encourage investment in this state at a time when capacity is exiting California and growing in other regions.

In recent days, market prices appear to be rebounding in response to supply concerns,” Ahlem continued. “We should let markets work. Increasing the minimum price will not increase the real value of milk. These intrusive regulatory adjustments insulate our industry from true market signals and do not create sustainable value. If we are really going to grow the value of milk over time, processors and producers must learn to respond to market signals and develop the skill set necessary to compete in the global marketplace.” Complete details are posted at www.dairyline.com

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