New formula keeps milk prices bottled up

California's agriculture secretary has changed how the state sets minimum prices for milk paid to dairy farmers, aiming to “provide a needed increase in revenue to producers to promote a stable milk supply.”
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But because current market prices for dairy products are so low, the new formula put into effect Wednesday provides no immediate boost for farmers, industry officials said.
Milk is a leading San Joaquin County farm commodity, with production in 2014 worth an estimated $541 million, second only to almonds at $579 million.
The California Department of Food and Agriculture sets minimum prices for milk paid to dairy farmers in the state. The federal government does the same for much of the rest of the country.
Established amid the Great Depression, the state’s milk pricing system is complex and highly technical, accounting for differences in quality, usage and market prices.
But it has failed to keep up with changing demands in how milk is processed and consumed, as well as the increasingly global nature of the market for dairy products.
Thus, Agricultural Secretary Karen Ross, in announcing her order, said “I still believe adjustments to the pricing formulas are inadequate to address long-term structural challenges facing the dairy industry.”
But given such adjustments are their only available tools, she made permanent a change in the price of milk used for cheese. More specifically, it changes the value of whey — the liquid containing lactose, proteins and minerals that is left over from cheese making.
Whey value has been sharply debated between dairy farmers and milk processors. It also prompted an ongoing drive by California producers to switch to the federal system, or milk marketing order, which from 2012 through 2014 had provided a much higher value for whey.
Since then, however, whey prices have crashed, and both federal and state pricing systems currently give it very little value.
Anja Raudabaugh, chief executive of Western United, said the price formula change may boost farmers’ income, but only once market prices recover.
“The secretary is really trying to respond to the changing condition with the best tools available to her,” she said. “But at this time it’s not going to affect dairy families.”
They could use some help. Numerous factors have combined to depress global prices for all types of dairy products.
Raudabaugh said European officials lifted quotas on their dairy farms, which boosted production and flooded that market. Russia has embargoed U.S. food imports since 2014. New Zealand is producing an excess of dairy, competing with U.S. products in Pacific Rim markets. And more milk is being produced in other U.S. states, as well.
“So you’re seeing market niches filled that California production would normally go in,” she said.
Annie Acmoody, Western United economist, said California minimum milk prices in first half of 2014 averaged $21.58 per 100 pounds. Milk is sold by weight, and the industry standard measure hundredweight, or 100 pounds, is about 11.6 gallons.
In the first half of 2015, the state milk price tumbled to an average $14.09 per hundredweight and for the first six months this year eased to an average $12.71.
The state calculates it costs farmers $18.08 to make a hundred pounds of milk late last year.
“You can see that’s a pretty good difference,” Acmoody said. “That’s why we’re losing a lot of dairies.”
State milk production had fallen in 2015 and is down even more this year.
Bill Schiek, an economist for the Dairy Institute of California, which represents milk processors, worries that some cheese producers could be put out of business once whey prices begin to recover.
“The formula kind of assumes they’re getting revenue from whey,” he said.
The problem with that, Schiek said, is that many processors “don’t have the ability to do anything with the whey they produce.”
Smaller cheese-making operations, in particular, can’t support the expensive whey drying equipment needed to realize full value from the dairy byproduct.
Said Schiek: “The challenge I think we’re going to have going forward is how do we generate the kind of value out of the products we make to support the dairy industry.”
 
Source: Recordnet
 

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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