ca dairy industry update dairy industry update.pdf · ca dairy’s pricing survival is dependent on...
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CA Dairy Industry UpdateAmerican Society of Farm Managers and Rural
Appraisers
April 25th, 2019
Milk production 1998-2008-2018
Milk production
California: fewer dairies; larger herds…The trend continues?
•Number of dairies in gradual decline•2,157 dairies in 2001•1,496 dairies in 2013•1,470 dairies in 2014•1,438 dairies in 2015•1,392 dairies in 2016•1,331 dairies in 2017
• Cows per dairy continue to increase• 721 cows per dairy in 2001 • 1,186 cows per dairy in 2013• 1,217 cows per dairy in 2014• 1,215 cows per dairy in 2015• 1,249 cows per dairy in 2016• 1,304 cows per dairy in 2017
Very slow declining trend recently
Exports finally up a bit yoy, but 2015 was down 70% yoy
Exports finally up a bit yoy, but 2015 was down 70% yoy
Exports finally up a bit yoy, but 2015 was down 70% yoy
New Order –Federal Milk Marketing Order #51• Main differences with current system
• Different class prices that are higher than California’s current minimum prices
• Only Class I is pooled and regulated by USDA• Processors have the ability to operate outside of minimum prices• No transportation allowances and fortification allowances• Quota will be deducted on producers milk checks and will be a program
(Quota Implementation Plan) run by CDFA
California class prices vs FMMO class prices
Price $22.98 $20.70 $22.13 $20.31
Gross Pool RevenueJan2014 = $784 million
Class 1 Class 2 and 3 Class 4a Class 4b
Quota premium ($13 million)
Regional quota adjusters
12.5% 8% 34.9% 45%
Price producer receive Net dollars/net pounds ($20.83)
XX
I II IV III
Price $22.98 $20.70 $22.13 $20.31
Gross Pool RevenueJan2014 = $784 million
Class 1 Class 2 and 3 Class 4a Class 4b
12.5% 8% 34.9% 45%
Price producer receive Net dollars/net pounds ($20.83)
I II IV III
• Only Class I is obligated to the pool and regulated by USDA• Processors have the ability to operate outside of minimum prices
Pros of the New FMMO
• Only Class I is obligated to the pool and regulated by USDA• Processors have the ability to operate outside of minimum prices
Cons of the New FMMO
• Cooperatives –which represent almost 80% of the state’s milk, can play the pooling game well
• In some cases, cooperatives that have both Class III and Class IV utilization can play the pooling game exceptionally well and to producer’s advantage
• Timing is critical, as all players need to understand the market and the re-pooling rules to perfection
Ca Dairy’s Pricing Survival is Dependent on the Pooling Game
California pooled milk volume
November 2018
December 2018 March 2019
CDFA 2018
~$12 million is needed to fund the quota program
CDFA calculates total pool monies
Quota premium dollars are taken out of the pool to pay quota holders
CDFA calculates the overbase price. Producer sees the overbase price on his milk check.
Grade A producers receive a milk check (based on the FMMO blend or a direct contract with their processors)
Quota premium dollars are taken out of the producers’ milk check
CDFA redistributes quota premium dollars to pay quota holders
CDFA Prior to FMMO FMMO/QIP
Historical approach:Overbase : $20.00 Quota Assessment on milk check: $0.00Net Milk Price: $20.00
New (in your face) approach:Producer price : $20.38 Quota Assessment on milk check: $0.38Net Milk Price: $20.00
• Only Grade A market milk is assessed, Grade B is not• Producer’s can now see –every month, the precise amount being deducted
for the statewide quota assessment• An organized group of overbase producers has filed a petition with CDFA to
terminate the QIP• Validation of the petition is currently pending • Should a referendum be called, there are high thresholds needed to pass• 51% of eligible producers must vote. Then, of those voting, 51% of producers
representing at least 65% of the milk, or 65% of producers representing at least 51% of the milk, must vote yes
Serious Quota Rumblings in the Industry
• Feed costs remain over 50% of the cost of production for producers• A majority of milk production in the state lies in the white areas • The future of surface water reliability is a major concern for the state’s dairy
industry• Feed valuation must be considered as part of the REGULATORY obligation
dairies need to operate• Dairy’s general order requires land application of manure
Multiple Cost of Production Challenges
• 94% of the nitrates monitored by the state’s dairy industry are coming from the land application of manure
• 4% is attributed to lagoons• WUD is supportive of a statewide solution to bring certainty to valley
residents and to the industry • The long term solution to nitrates can be found through the regulatory relief
of CVSALTS (Central Valley Salinty Alternatives for Long Term Solutions)
Dairy has a nitrate problem –but so does everybody else
• Dairy is well matched with a majority of voters top priorities• The space that needs to be claimed is perfectly politically matched• Consistent and tactical political strategy is appropriate to stop the regulatory
cost of production
Dairy’s COP Future Depends on More Strategic Policy Choices that MIRROR Political Strategy
Anja Raudabaugh, [email protected](916) 532-9974
Annie AcMoody, [email protected](765)543-4483
Thank you!