California processors say dairymen's situation improving
By CAROL RYAN DUMAS
California dairymen's margins are improving, according to the Dairy Institute of California, which represents dairy processors, but dairy farmers disagree.
California cheese makers and other dairy processors paid over $400 million more into the milk pool in the first half of 2013 compared with the same period in 2012, according to data from California Department of Food and Agriculture, said Rachel Kaldor, the Dairy Institute's executive director, in a press release.
"That $400 million in additional revenue translates to $250,000 more per dairy farm," she said.
In addition, increases to milk pricing formulas implemented by the California Department of Food and Agriculture will add $62 million this year to the milk pool, she said.
Dairy farm margins are also improving, with dairy farmers enjoying an average 57 percent improvement in income over feed costs in fourth quarter 2012 and first quarter 2013 compared with 2012's second and third quarters, she said.
Dairy farmers, however, question her numbers.
"My question to Rachel (Kaldor) is whose books is she doing, because ... she's full of it," said Tom Barcellos, president of Western United Dairymen and a Porterville dairyman.
Theoretically you take a 10 percent loss and reduce it to a 5 percent loss, and that's a huge improvement, he said.
"It's all semantics," he said. "You can massage the numbers anyway you want. The reality is everyone is struggling to survive."
Processors can paint a picture of how wonderful things are, but dairymen are continuing to throw in the towel, he said.
"With that huge improvement, I'd like her (Kaldor) to call that gentlemen selling at auction and going out of business and tell them things are great," he said.
Rob Vandenheuvel, manager of the Milk Producers Council, agreed, saying the state's data show that milk prices lag cost of production.
Losses for a 1,000-cow dairy in the last five years have amounted to $2 million. Cost of production in the first quarter of the year was $19.16 per hundredweight of milk, and the blend price farmers received was under $18, he said.
"Dairymen still lost a $1 a hundredweight. What's so rosy about that?" he asked.
Even if processors put $400 million more into the milk pool in the first half of this year, end-product pricing in California's milk pricing formula just means they were getting paid more for their products, he said.
And does that mean they should pay $2 per hundredweight less for milk than their associates across the border in Oregon? he saked.
Dairymen are still losing money, he said.
"The reality is these guys are still carrying debt from 2009," he said, adding that dairymen in most of the country have made that up.
"What we're seeing is that things are kind of drifting in the right direction," the Dairy Institute's economist Bill Schiek said on Thursday.
High feed prices are coming down, and milk prices are going up. The corn crop is looking better every week, and milk prices should remain strong the remainder of the year due to high demand, he said.
"I think right now a lot of the better (dairy) managers are doing OK. The guys buying feed continue to have problems, but not as bad as last year. If corn prices drop as indicated in the futures, it'll be a game changer," he said.
"All of these trends are very good news for California's dairy farmers," Kaldor said in the release.
Both Barcellos and Vandenheuvel view the Institute's "rosy" picture as a way to get out of the deal processors agreed to for temporary milk price increases negotiated through Assemblyman Richard Pan, D-Sacramento, they said.
"They're trying to back away from the agreement," Barcellos said.
That agreement would raise the Class 4b price for milk used to manufacture cheese by 46 cents per hundredweight through June 2014 and permanently raise the cap on the whey factor in 4b pricing from 75 cents to $1 per hundredweight. The changes are expected to generate an additional $110 million for the milk pool.
The Institute supported those changes "if economic conditions warrant" in a July 8 letter to Pan.
The agreement was a significant concession on the part of dairy producers but was accepted as a much-needed short-term price relief. Now it appears the Dairy Institute is backtracking, Vandenheuvel said.
"What the heck happened between July 8 and Aug. 1? Suddenly everything's great and we don't need anything?" he asked.
In response, Kaldor said producers' reaction to the Dairy Institute's statement on market conditions based on CDFA's data is unfortunate.
"I think it's important people understand the facts show things are different than last year. The numbers are the numbers," she said.
The Dairy Institute stands by its statement that it supports the agreed-upon increases in 4b pricing if economic conditions warrant it, she said.