Cheesemakers, milk producers debate source of low prices

By CAROL RYAN DUMAS

Capital Press

Dairymen attending the Idaho Milk Processors Association annual convention in Sun Valley on Aug. 12 wanted answers as to why they're getting the lowest prices in the country for their milk.

Producers on a panel addressing the issue trace the drop in milk prices to the loss of two federal marketing orders.

"The federal order system kept us competitive," said Alan Stutzman, general manager of Magic Valley Quality Milk Producers co-op. "Federal orders gave us transparency and a competitive pay price."

The two orders covering parts of Southern Idaho were combined in 2000; the resulting marketing order was voted down by producers in 2004, he said.

The basis in cheese-yield price and Class III price tracked well for a while, but the last four or five years have seen a 70 cent per hundredweight spread, said Rick Onaindia, chief financial officer for Bettencourt Dairies.

"In large part, it's been pretty negative the last seven years," he said.

Neighboring Class III dairymen in the Pacific Northwest federal order are getting a higher price because they share in more fluid milk utilization and their formula also includes the higher of the cheese price or butter-powder price, he said.

Dairymen have always been price takers, but times are changing, said Mike Roth, IDA president and co-owner of Si-Ellen family dairy, of Jerome. Dairymen are building plants, and more of Idaho's historically independent dairymen are likely to go to co-ops as they get better at marketing milk.

Class III pricing should be the base, as it is critical for risk management, and he said Idaho is in the infancy of Class III pricing.

"How many bankruptcies do you have to have to recognize" producers need more for their milk, he asked.

When Jerome Cheese Co. changed to cheese-yield pricing in 2000, there was parity between the cheese-yield price and Class III, said Jon Davis, chief operations officer of parent company Davisco Foods.

Changes to Class III formulas have caused a huge disparity between the two prices, because regulators divorced Class III from the market, he said. The flaws in Class III formulas allow it to be manipulated, adding arbitrary values that don't exist.

Idaho's cheesemakers are price takers, too, and can't pay on values they don't receive, he said.

Producers in other areas of the country get paid more because they have a much higher Class I utilization, and Class III producers share in that pool, he said.

"Federal orders are a sham, but what puts money in is they have more people," he said.

Jerome Cheese Co. was paying on a cheese-yield basis for most of the period Idaho's milk production was growing, from 5 billion pounds in 1997 to more than 12 billion pounds now.

"Something must be right," he said. "When we had $1.60 cheese, you were dancing in the street."

Cheese prices have been over $2 a pound for close to 50 days, he said.

"Cheese price is not the problem; cheese-yield formula is not the problem; the problem is all to do with feed prices. It's the energy policy coming out of Washington," he said. "We need to get rid of ethanol subsidies."

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