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Discussing a Federal Milk Order in California

Discussing a Federal Milk Order in California. Why Consider a CA FO?. Current Situation CA pay price much less than FO pay prices Negative margin conditions Tremendous pressure on CA producers Previous Efforts Several CDFA hearings, minimal progress

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Discussing a Federal Milk Order in California

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  1. Discussing a Federal Milk Order in California

  2. Why Consider a CA FO? • Current Situation • CA pay price much less than FO pay prices • Negative margin conditions • Tremendous pressure on CA producers • Previous Efforts • Several CDFA hearings, minimal progress • Four-month, 25 cent increase 2/1 thru 5/31/13 • Future Efforts • Future of CA Dairy Industry Task Force, AB31, Marketing Agency in Common

  3. Ongoing Activities • Pursuing quota protection • Initiating conversation with USDA • Educating LOL producers • Contributing to industry meetings • Western United Dairymen • World Ag Expo • LOL, CDI & DFA funding Stephenson/Nicholsan study

  4. BENEFITS of Milk Orders (CA & FO) • Classified pricing = minimum pricing • Price formula transparency • Enforce terms of trade • Auditing of tests, volumes, prices • Rules tailored to each specific market

  5. Similarities Between CA & FO’s • End product pricing • Component pricing • Overbase price similar to FO blend • Equal raw product costs for processors • Market wide (CA statewide) revenue pooling • Transportation credits, location adjustments

  6. CA & FO’s DO NOT: • Regulate producers or restrict production • Guarantee producers’ margins • Regulate who a producer can sell milk to • Guarantee market access for producers • Set maximum prices to producers • Set wholesale or retail prices

  7. Differences Between CA & FO’s • CA producers own quota • FO handlers make decision to depool • CA producers make decision to depool • FO handlers ship milk to class I monthly • CA amendment process much shorter • FO producers’ prices differ by location

  8. Sources of Additional Value in FO Pool • Class I: small increase on 15% of milk • More products included in class I (UHT, buttermilk, egg nog) = more milk in class I • FO regulates class I imported from other states

  9. Sources of Additional Value in FO Pool • Class II: small increase on 10% of milkLower volume: class II prod’s move to class I • Class III: potential increase on 45% of milk FO Whey moves with market No FO FOB cheese adjuster • Class IV: small increase on 30% of milkNo FO FOB butter adjuster FO NFDM make allowance slightly smaller

  10. FO Prices Compared to CA(2012) *FO 124, Pacific Northwest

  11. Potential Costs of FO • Impact on Manufacturing Plants • Increased costs to plants • FOB adjusters on butter & cheese • Make allowance differences • May Require More Class I Shipments • Impact milk plants

  12. Challenges of Adopting FO in CA • Cheese processors Class III should be lower because of location relative to eastern markets • Fluid milk processors Will price changes impact class I consumption • Consumers Impact on retail prices

  13. NEXT STEPS • Review Stephenson study • Purse Congressional assurance that CA quota retained under FO • Continue educating producers to understand their concerns • When producer interests fully aligned, move to submitting joint proposal to USDA • Timeline: 12 to 18 month process

  14. Submitting Joint Proposal to USDA • Producers unified behind common proposal • Explain purpose, propose FO language • Estimate impacts • Prepare testimony • Testify

  15. Questions and Comments

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