Producers bid a less than fond farewell to 2006 price year

With 2006 almost in their rearview mirror, California dairy producers can hardly be blamed if they bid a less than fond farewell to what will be remembered as a terrible year. The bad news was across the board, as a survey of current prices compared to January 2006 prices show:
* On January 6, 2006, butter prices sat at $1.400 per pound but fell to $1.1450 mid-year. As of December 21 butter prices are at $1.2550 per pound.
* Non-fat dry milk started out the year at $0.9699 per pound but fell to as low as $0.8046 by mid-year. As of December 21 prices have recovered to $0.9810 per pound.
* Cheese blocks at the start of the year were priced at $1.3675 and fell to as low as $1.16 per pound by mid-year. As of December 21 block prices stand at $1.3250.
* Dry whey started the year at $0.3463 per pound, fell to $0.29 per pound by mid-year and has recovered to $0.4450 as of December 21.
Western United Dairymen led the way with a flurry of pricing activity at federal and state levels in an effort to lessen the impact on producers. “California dairy families have been taking a hit in the pocketbook all year long,” pointed out CEO Michael Marsh. “We have sought relief through a variety of hearing requests at the state level, in addition to continued initiatives with USDA. While we were not successful in all of our efforts, we have kept the pressure on for relief for producers. As we look forward to 2007, we will continue those efforts even more strongly to help our members stay economically viable.”

The year 2006 was packed with four major state hearings
A January 31, 2006, transportation hearing centered on a proposal for increasing allowances for milk moving into the Bay Area, Southern California and San Diego, and proposals were heard to provide incentives to move milk to higher usages. WUD offered an alternative proposal to eliminate transportation credits for condensed skim milk. In March CDFA granted the majority of the increased allowances, but denied WUD’s alternative proposal.
A June 1, 2006, hearing focused on a petition by the Dairy Institute of California to change manufacturing cost allowances, f.o.b. adjusters, the cheese yield, and the dry whey component in Class 4a and Class 4b formulas. The petition was opposed by WUD, which noted that labor, energy, and transportation costs have all risen for producers. WUD estimated producer overbase prices could drop by anywhere from $0.27 to $0.50 per hundredweight under the suggested pricing formulas. CDFA issued a decision in July, but held off on implementing the decision until November 1, 2006. The implemented changes lowered overbase prices by an estimated $0.22 per hundredweight. WUD estimated the changes cost producers nearly $100,000 in lost income for each of California’s 2,034 dairies. WUD’s alternative proposal requesting that prices for butter, nonfat dry milk, and cheese used in Class 4a and Class 4b formulas be floored at their respective support purchase prices as announced by USDA was denied.
A July 6, 2006, transportation hearing was called on a petition filed by CDI in order to address concerns with the January transportation hearing determinations. CDFA granted most of the requested changes. A decision was also made to add Sacramento County as a deficit county eligible for plant-to-plant transportation credits from Merced and parts of Stanislaus County at a rate of $0.20 per hundredweight. The hearing panel recommended against the proposal but CDFA decided to implement the transportation credit. WUD submitted a request for reconsideration with CDFA, noting the proposal to add Sacramento County as a deficit county was not made prior to the hearing, proper notice was not and could not have been given to interested producers or processors, and it was not considered at the pre-hearing workshop. Finally, the decision ultimately did not provide benefit to anyone, not even the party requesting the change. CDFA denied WUD’s request for reconsideration.
In April, WUD submitted a petition calling for an increase in Class 1 prices to bring California’s prices into reasonable relationship with the prices paid to producers in contiguous states. WUD’s proposal, if implemented, would result in an approximately 44-cent-per-hundredweight increase in the Northern and Southern California Class 1 prices. The hearing was granted for December 5, 2006. In July, WUD requested that CDFA expedite the Class 1 hearing. The request was denied. At the December 5 hearing WUD provided testimony to support an increase in the Class 1 price. A decision on that proposal is pending.
Milk Regulatory Act major victory for producers
A major victory came in March when Congress passed the Milk Regulatory Equity Act to close a loophole allowing out-of-state milk handlers to escape federal and state regulations. The passage of the Milk Regulatory Equity Act (MREA) authored by Senator Diane Feinstein and Congressman Devin Nunes and signed into law by President Bush in April 2006, marked a major victory for the U.S. dairy industry. “This loophole has been costing the average California dairy family $12,000 a year at a time when they can least afford it,” said WUD President Case Van Steyn. WUD was an integral part of an unprecedented national coalition of producer and processor groups that supported the measure.

DEIP implementation stressed by WUD
WUD also pounded on USDA to make better use of the Dairy Export Incentive Program (DEIP), saying that WUD economic analysis shows the potential positive impact exports under DEIP could have on current dairy markets. “The potential DEIP allocations represent nearly two months of U.S. production of nonfat dry milk and a half month’s U.S. butter production,” pointed out Marsh in a letter to USDA Secretary Mike Johanns. “We should use all legal tools to keep our producers competitive. DEIP is one of those tools.”
WUD also played a major role in fostering industry discussion about the future when it co-sponsored an October meeting to discuss “Foundations for a Consumer-Driven Dairy Growth Strategy.” The report commissioned by the California Milk Advisory Board is designed to help the industry identify potential future threats and opportunities. The report concludes that the industry faces a triple challenge in the next 20 years: 1) Large-scale and costly environmental regulations; 2) A supply of raw milk that could exceed demand; and 3) A poor outlook for investment in innovation and new in-state processing capacity.
The report provides a “basic foundation of understanding for future dialogue within the industry,” said Marsh. “WUD hopes to continue to foster those important discussions in 2007.” WUD will bring all of its tools to bear in 2007, says Marsh, to fight for producer profitability. “We’ve seen all of our dairy farm inputs climb?from energy to feed costs. And the toll of unreasonable environmental and other regulatory action continues to rise as well,” he said. “Our members can be assured that in 2007 we will seek every opportunity to maximize their profitability.”