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.
Source: Western FarmPress