Even if a federal milk marketing order (FMMO) does eventually come to California and next Wednesday's public hearing in Sacramento winds up being the last time farmers and processors square off on opposite sides of a state-run pricing squabble, there is still no chance of them making up and walking out the door as friends.The June 3 hearing, called by the state itself, will consider temporary adjustments to the Class 4b (powder) component of the state's pricing formula that would help close the gap between equivalent FMMO Class 3 prices that have been significantly higher in recent years. If implemented, any increase could last for up to two years.
Producers and processors are once again light years apart in proposals they will make at the hearing. And once again, the pittance of price assistance proposed by the Dairy Institute of California (DI) on behalf of cheese processors may alienate producers even more.
According to Rob Vandenheuvel, general manager of Milk Producers Council, which co-authored the farmer plan with California Dairy Campaign and Western United Dairymen, the potential dollars-and-cents difference to farmers between the two plans is staggering.
The reason why starts with time. The processor proposal is for six months of temporary 4b adjustment, while the producer proposal is for all 24 months.
More significantly, the processor plan proposes changing the key component long used in the statewide pricing formula to arrive at the 4b price – from a dry whey basis to whey protein concentrate.
In his weekly newsletter a week ago, Vandenheuvel said such a change would have amounted to a net 2.8 cents per hundredweight higher overbase price in April. The producer proposal, by comparison, would have amounted to an increase of almost 42 cents per hundredweight.
Since the producer proposal calls for an adjustment duration that is four times longer, the difference in total extra dollars for farmers is potentially massive.
For the sake of simplicity, let's assume that class 4b market conditions stayed at April levels for 24 months, which is totally impossible of course. Under the processor plan, the average dairy in California (based upon 2014 herd size and production per cow figures) would see an additional $3,991 of income during the six-month duration it proposes.
Under the producer plan, total average additional income per farm during the two-year duration it proposes would be $119,741.
At worst, California milk producers look to be guaranteed to come away from the hearing with something, in the form of at least the processor proposal. As little as that is, it would still be more than the absolutely nothing they have occasionally received from hearings in recent years.
But producers have at least two reasons to hope for more this time. One, statewide milk production has been falling in recent months, which undercuts processors' longtime argument that rising supplies prove that higher prices are not warranted.
Two, producer margins have fallen dramatically since 2014. In fact, the state's most recent cost of production survey (fourth quarter 2014) found the statewide average was $20.09.
The author has served large Western dairy readers for the past 38 years and manages Hoard's WEST, a publication written specifically for Western herds. He is a graduate of Cal Poly-San Luis Obispo, majored in journalism and is known as a Western dairying specialist.
