For the past several years, we’ve kept a close eye in this newsletter on the significant gap between California’s Class 4b price (which applies to milk sold to California’s cheese manufacturers) and the Federal Order Class III price (the benchmark price used around the country for milk sold to cheese manufacturers). We’ve dubbed it the “California discount” and kept a running tally on the impact it has had on California’s producers.
This week, following a hearing held on June 3, Secretary Karen Ross and the California Department of Food and Agriculture (CDFA) took a significant bite into that California discount, albeit on a temporary basis. The announcement, which goes into effect on Aug. 1 and is in place for 12 months, would bring our Class 4b price in much closer alignment with the Federal Order Class III price.
Now closer does not mean equal. Regardless of what our cheese-making colleagues might think or say about this Class 4b price increase, they will still be benefiting from a lower regulated price than exists anywhere else in the country. However, had this new calculation been in place last month, the Class 4b price would have been $.69 per hundredweight (cwt) more ($16.24 per cwt) and would have been $.48 per cwt less than the Federal Order Class III price (compared with the actual discount of $1.17 per cwt).
If this new calculation were in place for July, our estimated Class 4b price would be $15.39 ($.55 more), and our estimated overbase and quota prices would be $16.27 and $14.57 respectively ($.25 more).
The changes in the Class 4b formula are related to how the market price for dry whey is incorporated into the milk price calculation. So looking forward, if the CME futures markets are any indication, the dry whey markets are expected to be at or below their current levels for the foreseeable future.
Plugging those dry whey prices into this new Class 4b calculation indicates that our Class 4b price on average over the next year should be roughly $.50 per cwt below the Federal Order Class III price. (The gap between these prices will likely vary from month to month due to other differences between the two formulas, so this is a long-term average estimate.)
While this represents a continued discount, it is a far cry from the $1.84-per-cwt average monthly California discount we’ve seen since 2010!
Of course, producers must continue to work towards a long-term policy that facilitates milk prices that are at or above the rest of the country, as we can no longer afford to be the low-cost milk leader in this high-cost environment. That is why MPC (California Milk Producers Council) and our fellow producer groups and cooperatives must continue to press forward in promoting a California Federal Milk Marketing Order.
Having said that, today’s announcement represents good news for California’s dairy families, providing them with a much-needed immediate adjustment that will result in more market based revenue for California’s dairy families and put us in a better position to compete with our fellow out-of-state dairymen. PD
—From California Milk Producers Council July 17 Market Update report