Editorial Comment Publisher/Editor


New California Federal Order Starts To Get Real

Dick Groves
Cheese Reporter Publishing Co., Inc.
dgroves@cheesereporter.com 608-316-3791

September 14, 2018


The dairy industry is still about a month and a half away from when the new California federal milk marketing order becomes fully effective, but there are some things happening right now that are making the new California federal order more and more “real.” And the “realness” of the California federal order is only going to increase between now and the end of the year.

The story of California joining the federal order program is several years old now. It was back in February of 2015 when three dairy cooperatives — California Dairies, Inc., Dairy Farmers of America and Land O’Lakes — asked USDA to call a hearing to promulgate a federal order for the state of California.

The process of California adopting a federal order played out over several years, culminating in over two-thirds of the state’s dairy producers voting in favor of a federal order. Prior to USDA announcing that referendum result, CDI, LOL and DFA announced that they had bloc voted on behalf of their respective members in support of a California federal order.

USDA published in the Federal Register a final rule establishing a federal order for California on June 8, 2018. That final rule actually includes two key dates. There’s an “applicability date”; all provisions of the final rule apply to affected parties as of Nov. 1, 2018.

There’s also an “effective date”; the final rule is effective with the “Announcement of Advanced Prices and Pricing Factors” on Oct. 17, 2018.
That announcement will include, among other things, the Class I base price and the Class II skim milk price for November.
And so it was noteworthy on Monday, Sept. 10, when the California Department of Food and Agriculture published its October 2018 Class 1 price announcement. That announcement included the following:

**Please Note: Due to the implementation of a Federal Milk Marketing Order (FMMO) for California, this is the final price announcement for Class 1 milk issued by the California Department of Food and Agriculture.
Future price announcements for Class I milk in California will be issued by the United States Department of Agriculture. For more information regarding the California FMMO and applicable minimum class prices, please visit: https://www.cafmmo.com/.

That announcement, in a way, marks the official beginning of the end for the California state milk order. In a few short weeks, California’s Class 1 price will cease to exist, and will be replaced by the federal order Class I base price.

In a couple of weeks (no later than Oct. 1, 2018), the CDFA will announce the September 2018 Class 4a and 4b prices. And then about a month later, the CDFA will announce the October 2018 Class 4a and 4b prices.

Those will be the final Class 4a and 4b prices issued by the CDFA. Effective Nov. 1, those prices will be replaced by federal order Class IV and Class III prices, respectively.

This will end three eras in California milk pricing: the eras of a Class 4 price, the era of the Class 4a price and the era of the Class 4b price. Prior to August 1983, California had a single Class 4 price based on butter and nonfat dry milk commodity prices. The Class 4 price applied to all manufactured products.

From August 1983 through August 1988, the Class 4b (cheesemilk) price was set equal to the Class 4a price, which continued to be based on butter and NDM commodity prices. And since September 1988, California has had separate prices for Class 4a and 4b.

And in a couple of months, those prices will all be relegated to the scrap heap of dairy pricing history. And so will California’s Class 1, Class 2 and Class 3 prices.

But that’s progress in the dairy pricing arena. Indeed, a CDFA “History of Class 4b Pricing Formula” document published about a decade ago notes that, from January 1989 through September 1989, the Class 4b price was based on a hundredweight price set equal to the Class 4a price calculated at the support purchase prices for both butter and for nonfat dry milk, times the National Cheese Exchange block Cheddar cheese price divided by the support purchase price for block Cheddar cheese.

So an early version of California’s 30-year-old Class 4b price included two factors that no longer exist: a National Cheese Exchange block Cheddar cheese price (the NCE ceased operations in 1997) and support purchase prices (the Dairy Product Price Support Program, under which USDA’s Commodity Credit Corporation purchased surplus dairy products, was terminated in 2014).

In addition to the federal order Class I milk price announcement on Oct. 17, the California dairy industry can look forward to a couple of additional, historic price announcements in the near future.

First, on Dec. 5, USDA will announce Class III and IV prices for November; those prices will succeed the California 4b and 4a prices. And then on or before Dec. 14, USDA will announce November’s producer price differential.

There are some other, subtle changes taking place that will also indicate that the California federal order is becoming a reality. Among other things, there’s a menu item on the CDFA Dairy Marketing and Milk Pooling Branch website entitled “Hearing Matrix.” With California joining the federal order program, there will no longer be a need for anyone to petition the CDFA to hold a hearing on any price-related matter.

Thus will end decades of wrangling over appropriate levels for California milk prices.

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to
dgroves @cheesereporter.com.



Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 35 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com

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