The California Department of Food and Agriculture announced Friday it will amend the state’s Class 4b pricing formula by increasing the dry whey factor value for one year effective August 1st. CDFA says had the change been in effect for the last five years it would have resulted in an average increase of $1.01 per hundredweight in the 4b price and 46 cents more in Quota and Overbase prices.
California dairy farmers have been complaining for years that the 4b price formula was flawed in that the milk price was consistently significantly below the Federal Class III price. Read the CDFA letter to all interested parties here:
Eric Meyer with HighGround Dairy says the change will not be that dramatic for dairy producers:
First, it is a given that with this ruling, California dairy farmers will receive more money in their milkcheck from the increase whey value. But CDFA’s rough analysis on historicals occurred when dry whey prices were in a five year bull market. That ship has officially sailed. As whey prices are on the way down, the increase to farmers’ overall milkchecks will be minimal, particularly with the 4a price in rapid descent and 4b not far behind as NFDM, cheese and whey prices continue falling.
California cheese processors have been fighting this potential change tooth and nail for months. Money is being taken out of their pockets which is coming at a very challenging time as both whey protein concentrates and lactose are 50% or more below their values from a year ago. Profitability for CA cheese makers is shrinking fast, but the 4a/4b spread will keep milk flowing into the vats for the foreseeable future. The price of cheese in California to domestic and international customers is likely on its way up as a result of this ruling.
Either way you slice this story, we view the impact as bearish the current market. More money to CA farmers could keep milk flow up longer (although we doubt this will have much effect). But the real kicker is the hit taken to CA cheese manufacturers. This can be viewed as a double whammy to their bottom line as revenue is being removed from lower whey product sales returns and more money being returned back to the farmer in the milk check. As demand for cheese is starting to back up around the countryside, a potential overage increase to recoup lost revenue will not sit well with end-users, particularly off-shore customers that will have additional choices from Oceania and Europe in the coming months
Source: Brownfield Ag News
