Change needed 'to maintain a healthy dairy producer industry,' leader says
By CAROL RYAN DUMAS
A disparity in the value of dry whey in minimum milk price formulas between California and federal milk marketing orders has prompted a petition to the California Department of Food and Agriculture.
Western United Dairymen, Land O'Lakes and the Dairy Institute of California -- representing processors -- are calling for an increase in the Class 4b whey value. That class of milk is used to make cheese.
In 2007, CDFA set a flat value on dry whey at 25 cents per hundredweight as the producer's share of whey revenues, but whey values have increased since then, said Michael Marsh, Western United's executive director.
"Producers have left a lot of money on the table," he said.
California's Class 4b minimum milk price typically has been $1 to $2 per hundredweight lower than the federal marketing orders' price, primarily a result of the whey value, he said.
CDFA held a hearing on the petition June 30 and July 1 in Sacramento.
"It was nice to hear processors admit that there is some value to whey and agree to some change," he said.
While Western United supported Land O' Lakes proposal that would set a minimum value at 25 cents per hundredweight and cap it at $1, it also submitted its own proposal that would eliminate the fixed factor in the pricing formula and change it to 80 percent of the Dry Whey West price.
The majority of processors supported a higher whey value and a 75 cent per hundredweight cap, Marsh said.
Dairy Farmers of America supports Land O' Lakes' proposal, said Glenn Wallace, vice president and CFO of DFA's Western Area Council.
"Obviously, our job is to get a fair national price for milk for our producers," he said.
Today, California's 4b price is $2 hundredweight lower than the national price for milk going into cheese, he said.
"All cheese processors would not want to pay more for their milk ... but I also think they recognize it's important to maintain a healthy dairy producer industry," he said.
Most opposition is from small, specialty cheese makers who don't have whey processing capabilities. They contend paying more will put them out of business, but they're also selling high-dollar products, he said.
California Milk Producers Council supports both proposals, but prefers Western United's because it tracks better with the value in federal orders, said Rob Vandenheuvel, general manager.
The Land O' Lakes proposal, with a cap of $1 per hundredweight, doesn't track well with current federal order values of about $1.90, he said. Still, the proposal is better than what dairymen have now, and Milk Producers supported it to give CDFA another option.
California Dairies Inc., the country's second largest dairy processing co-op, agrees the whey value should move with the market, said Eric Erba, senior vice president of administrative affairs.
The fixed 25 cent per hundredweight was supposed to be a temporary factor until producers and processors could come to an agreement, he said.
"Here we are in 2011, and we still have that temporary factor that has no bearing on the market," he said.
Breakdown on proposals
Land O'Lakes wants to change the Class 4b formula to increase dry whey value, a variable factor that would track with dry whey prices
Western United Dairymen wants to replace the current flat 25 cents per hundredweight value of dry whey factor in Class 4b formula with a variable factor that would be about 80 percent of federal order whey factor in Class II.
Dairy Institute of California wants the variable dry whey factor in Class 4b formula floored at 25 cents hundredweight and capped at 75 cents per hundredweight.