Posted: Thursday, June 09, 2011 1:00 PM
Industry officials cite market changes to justify the update
The California Department of Food and Agriculture has granted two petitions asking for a hearing on processors' manufacturing costs on butter, powder and cheese and the f.o.b. adjuster, which represents processors' delivery costs, on butter and cheese.
All factor into minimum milk prices set by California's secretary of agriculture.
California Dairies, Inc. asked for the hearing concerning butter and powder, Class 4a, saying those portions of the milk-pricing formula should reflect actual costs of manufacturing and what California plants receive for their products.
Land O'Lakes petitioned regarding cheese, Class 4b, and is also asking the department to consider updating the whey portion of the Class 4b formula, also contending manufacturing costs and price for product should be reflected in the milk price.
Both groups are basing their requests for change on the department's own data, contending updates are justified.
While CDI wants to raise the make allowance on butter and powder and the delivery cost adjuster on butter, LOL wants to lower the make allowance and delivery cost adjuster on cheese and raise the whey factor in the formula.
If CDI's proposed increases went into effect, they would reduce the minimum milk price for Class 4a uses by almost 43 cents per hundredweight, Rob Vandenheuvel, manager of California Milk Producers Council, said.
In turn, it would lower prices for milk for Class II ( yogurt, sour cream, etc.) and Class III (frozen products), which are based on the butter/powder price, by the same amount, ultimately affecting 45 percent of the milk pool, he said.
LOL's proposals would increase the minimum price for milk used for cheese by nearly $1 per hundredweight, and about 40 percent to 45 percent of pooled milk is used in Class 4b plants, he said.
In its petition, LOL said the fixed 25 cent per hundredweight whey value in California's milk formula stands in stark contrast to the Federal Order Class III formula that has returned values in excess of $1.40 per hundredweight to dairy producers.
The hearing is set for June 30 and July 1, beginning at 9 a.m. each day, at the department's auditorium, 1220 N. St., Sacramento.
Western United Dairymen and the Dairy Institute of California each filed a request for a 15-day extension of the hearing to allow for appropriate analysis and preparation for the hearing. Those requests were denied.
California Dairy Inc.
Increase butter make allowance 2.51 cents per lb.
Increase nonfat dry milk make allowance 2.86 cents per lb.
Increase f.o.b. butter price adjuster 1.76 cents per lb.
Result: Reduce price to dairymen about 43 cents per cwt.
Reduce cheese make allowance 1.97 cents per lb.
Reduce f.o.b. cheese adjuster .02 cents
Update whey portion of Class 4b formula from the current fixed 25 cents cwt. to reflect monthly market values, up to $1 cwt.
Result: Increase price to dairymen about $1 per cwt.
Source: CDI, LOL, California Milk Producers Council