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Federal milk order could boost California prices slightly

Milk plant
Voting on the California FMMO runs through May 5. Reports suggest California's three cooperatives will "block vote" on behalf of their membership.
Producer milk prices under the new California Federal Milk Marketing Order, if approved, estimated to rise about 15 cents per hundredweight. Protein formula would change under the USDA proposal under consideration by dairy producers.

Whether milk in California is federally regulated or remains the product of state regulations will not be determined for a couple weeks, but if there is any indication from three producer meetings hosted by Western United Dairymen in various regions of the state, opinions are mixed.

Unscientific straw polls at the three meetings revealed that 80 percent of those attending the Tulare meeting favored the FMMO while a similar number opposed it in Modesto and Petaluma meetings.

All that may not matter as reports suggest the three California milk cooperatives – Land O’Lakes, Dairy Farmers of America and California Dairies, Inc. – will block vote for their members. This means rather than ballots going out to individual cooperative members, the cooperatives will each cast one vote on behalf of their membership.

The FMMO will pass if approved by two-thirds of the milk represented in the voting process. Voting continues through May 5. If approved, the new FMMO takes effect in November.

Eligible dairy producers who ship to independent processors will get to vote as well, but their numbers do not match the voting power of the cooperatives, particularly if the cooperatives vote the same way. If they don’t, one dairy leader says predicting the outcome of the vote becomes impossible.

The cooperatives petitioned the USDA in 2015 for a divorce from the California state order. The cooperatives control about 75 percent of California’s milk production, so how they vote will determine whether the state is allowed into the FMMO or remains with the California state order.

Meetings held across California by Western United Dairymen, the largest dairy membership organization in the state, showed mixed feelings about the FMMO.

The meetings were held to help dairy producers understand the ramifications of approving the order and not necessarily to promote or “sell” the order to producers. Dairymen could ask questions of two independent experts on dairy marketing. Mark Stephenson, director of dairy policy analysis with the University of Wisconsin, Madison; and, Dr. Andrew Novakovic, professor of agricultural economics at Cornell University, addressed the history and ideas behind federal milk orders.

In short, Novakovic said federal milk orders are there to provide efficiency in the marketplace by offering economic incentives to move milk to high-demand areas. The mission of federal milk orders is not to provide dairy producers with the highest price possible.

Still, California dairymen have long-argued that the state milk system favors milk processors, which leads to lower producer milk prices, though all regulated orders establish minimum pricing levels for milk based on the end product – butter, cheese, fluid, ice cream, etc.

Prices could rise

Both experts said California dairy producers could see milk prices rise slightly under federal regulation. “But we’re talking nickels and dimes, not dollar bills,” Stephenson said.

Still, California dairy producers remember several years ago when formula pricing factors did indeed result in a significant difference between state order and federal order pricing.

“California got slaughtered in the whey market back then,” one dairyman told Stephenson during a question-and-answer session.

Under financial projections provided by Stephenson, the blend milk price could rise less than 25 cents per hundredweight for California producers.

According to Novakovic one of the factors that could help California dairy producers will be a change in protein component testing, which will reward components over milk volume.

Though not there to defend the FMMO, Novakovic told California dairymen it is much easier to get out of the FMMO later than it would be to decline the decision now and attempt to resubmit a similar request in the future to join the federal order.

Novakovic further said California dairy producers could petition USDA for changes to the order in several years after implementation if they determine things “are not working quite as planned.”

“It doesn’t mean you get everything you ask for, but it also doesn’t mean that they’re your enemy either,” he said of USDA milk regulators.

Novakovic also said producers could later vote to leave the federal order if they wanted. That would take a simple majority, but could lead to other, unforeseen problems.

Another benefit to joining the FMMO for California could be seen in the significant amount of milk now entering the state from federal orders that the state system is unable to regulate, Novakovic said.

Is depooling a bad thing?

Some dairy producers fear the idea of non-pooled milk, which is essentially unregulated milk. According to Stephenson, unregulated plants would still need to pay whatever necessary to get milk delivered to the plant, which he suspects would be something near the blend price.

One Tulare-area dairy producer told Western Farm Press that he was concerned about depooling. According to Novakovic, it may not be as fearful as some producers think.

While a depooled milk plant is not required to meet minimum pricing, it does have benefits as those plants can forward-contract with producers at a fixed price for a given length of time whereas under federal orders, milk prices can swing significantly from month-to-month.

Stephenson believes that it is likely the new federal order would incentivize most Class III (cheese plants) in California and all Class II (soft manufactured products like yogurt, cream and cottage cheese) milk plants to remain unregulated or depooled, which is an option under the federal system. Only those plants that create fluid milk are required by law to be regulated or pooled.

TAGS: USDA Marketing
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