The California Department of Food and Agriculture dashed milk producer’s hopes Tuesday when Secretary Karen Ross denied an increase to the milk price for Class 4b milk, used for manufacturing cheese.
In a long battle to reconnect the value of whey in the 4b pricing formula to the marketplace, producer groups petitioned Ross to increase the 4b price by 35 cents per hundredweight of milk for one year and to permanently increase the cap on the whey value sliding scale from 75 cents to $1 per hundredweight.
Ross denied that proposal and instead extended temporary increases she put in place this summer on all classes of milk – including an increase of 15 cents for 4b milk – through June 2014.
Those increases combined will raise the blend price for all milk by 12.5 cents per hundredweight, as opposed to producers’ proposal that would have increased the blend price by 46 cents per hundredweight.
Producers went into the Sept. 12 hearing on their petition with cautious optimism, banking on an agreement containing the petitioned increases between producers and processors, negotiated by Assemblyman Richard Pan and supported by several legislators.
California’s milk producers were optimistic. But fixing the state’s pricing system is like trying to move a boulder up a mountain, said Michael Marsh, CEO of Western United Dairymen.
He said the rub came during the hearing when processors, represented by Dairy Institute of California, refused to honor the deal they had negotiated.
The Dairy Institute contend producers walked away from the agreement when they had language linking an increase to economic conditions stripped from the bill.
Marsh said producer groups and Western United’s lobbyist are unaware of any such conversation of stripping the language from the bill having ever taken place.
Producers are disappointed, especially by what they view as processors backing out of a deal they put in writing, said Rob Vandenheuvel, manager of Milk Producers Council.
“When you find out folks who are supposed to be partners in the industry go back on their word, it’s very disappointing,” he said. “The bottom line is a deal is not a deal,” he said.
CDFA was not part of any negotiations, and there was no piece of legislation reflective of an agreement, Ross said.
Processors were not petitioners, Ross said, and when questioned in the hearing, processors responded that there was no agreement.
The hearing was granted due to uncertainty in dairy markets and the then-unknown outcome of the corn crop. While market places are clearly recovering and feed prices are going down, that recovery is slow.
Ross said an extension of modest additional income for dairy producers was prudent to insure the stability of the dairy sector and allow time to get a better a sense of what’s happening in markets.
Ross said she understands there will be disappointment with her decision, but testimony did not provide justification for the proposed increases. She also realizes that California’s pricing system is outdated and broken and she is committed to working on a long-term fix, she said.
That’s little consolation for the state’s milk producers, Lynn McBride, executive director of California Dairy Campaign, said.
“We were disappointed once again. We think the decision demonstrates the state’s milk-pricing system just isn’t fair to milk producers in our state,” she said.
Producers say the temporary price relief is minimal considering the $1.05 per hundredweight gap between the blend price in federal orders and in California and mounting losses to California dairymen.
The decision does not give dairymen or creditors any more confidence in the state’s pricing system. The only way to join California’s milk prices with those in federal marketing orders is to join the federal system, and the Dairy Campaign will put its efforts in that direction, she said.
Processors, however, respect Ross’s decision.
“She understands conditions are improving for dairymen,” Bill Schiek, economist with the Dairy Institute of California, said.
Powder prices are strong and look to continue, cheese prices have strengthened, dairymen are receiving a lot more revenue this year than they did in 2012, and corn prices have fallen dramatically since July, he said.
Schiek said Ross provided additional income support for dairymen by extending the temporary prices increase that would have ended at the end of December.
“At the end of the day, the secretary is balancing the needs of processors and producers,” he said.