The Other Solids Price Crush

Volume 136, No. 28 Friday, January 6, 2012

Adding the value of dry whey to dairy farmer milk checks has been an unfair and logically flawed idea for nine years.

Every cheese factory in the US too small to dry whey, or process whey to get at whey proteins, loses money every month on this portion of the Class III milk price.

Why highlight a nine-year-old problem now? Because for the second time in those nine years, high dry whey prices are driving the “other solids” portion of the Class III milk price through the roof, and small and mid-sized cheese manufacturers are bleeding red ink — paying for a product they do not make.

In 2006-2007, cheese makers watched the other solids value soar to 60 cents per pound or $3.42 on the milk check at peak whey prices in April 2007. In November 2011, other solids continued a new, 10-month rise, hitting 45 cent per pound or $2.57 for farmers (April 2007 and November 2011 indicated with red bars in chart below).

If dry whey in November was worth $2.57/cwt for a dairy farm, where does a small cheese plant find that money?

Two mid-sized Wisconsin cheese factories shared their whey data with WCMA. (The chart below notes data for “plant 1 and “plant 2.”) The two plants reported earning $0.66/cwt of milk and $1.28/cwt of milk, respectively, for their wet whey in November. That income is far below the Class III value of $2.57/cwt for other solids.

As the chart shows, these two plants always earn less for their wet, unprocessed whey than they have to pay out to their farms in the other solids price.

In all, about 45 cheese plants in Wisconsin sell their wet, unprocessed whey to other manufacturers with processing equipment.

Among those 45 plants, most skim off the whey cream, and a few minimally process the whey: concentrating the whey in a reverse osmosis or
evaporator system before shipping off liquid whey.

In other words, one third of Wisconsin’s cheese plants are swimming in red ink on the other solids price.
California, with its own milk pricing system, acknowledges that smaller cheese companies can’t afford to pay the full value of dry whey to dairy farms. At a hearing last summer, California changed the value of whey in milk prices paid to dairy farms. The state changed its $0.25 whey payment to a sliding scale of $0.25 to $0.65/cwt.

The California hearing panel wrote: “Testimony showed that producers desire higher whey values when the whey market rises, but cheese processors, especially those that do not process whey in any form and those that only process animal grade whey products, are financially burdened when the whey market price increases dramatically or reaches certain thresholds.”

Just weeks ago, California’s Department of Food & Agriculture denied a fresh hearing from producer groups seeking higher values for the sliding scale that is capped at $0.65/cwt.

There is no cap on the value of whey (other solids) in the federal Class III price. Cheese manufacturers must pay farms each month for a product — dry whey — that requires millions of dollars in capital investment. It’s a dairy product that small and medium-sized cheese plants simply cannot afford to make.

It is not only unfair to add dry whey values to the Class III milk price, it is logically flawed. Milk prices in the federal order are intended to be base prices — a bottom-line price to which processors may add bonuses for quality milk, or milk with added fat or protein, etc.

The baseline product to establish a value for “other solids” in fresh milk should be skimmed wet whey, not whey that has been skimmed, cooled, transported and run through a million-dollar dryer. Dry whey is a value-added product hiding in a basic milk price formula.

Changing this injustice through a federal order hearing is akin to seeking to rewrite a chapter in the Bible. The only realistic hope for changing this nine-year-old mistake is recognition of this problem in the 2012 US farm bill.

It’s time for the value of other solids in fresh farm milk to be based on the value of its most common, base-line commodity — skimmed wet whey.

John Umhoefer has served as executive director of the Wisconsin Cheese Makers Association since 1992. You can phone John at (608) 828-4550; Fax him at (608) 828-4551; or e-mail John Umhoefer at jumhoefer@wischeesemakersassn. org


Other John Umhoefer Columns

 The Policy Answer Is Exports
 Rolling The Dice On Dairy Reforms
 Productive Changes In Wisconsin

 The Successful Idea Of DBIC
 Cheese Cuts Both Ways: Consolidation and Growth
 IDFA's Deep Dairy Reforms
 Wisconsin In The Spotlight
 An Overbuilt Foundation
 What the New Governor Means To Wisconsin
 No Man's Land
 Dairy & Wisconsin’s New Leadership

Wisconsin Cheese Is Investing, Expanding
 Talking Competition
 Being Big Dairy
Upper Midwest Prospects in 2010
Upper Midwest Growth: Perspectives From The Farm
Blue Skies or Bust
Pushing Back Against A Tough 2009
Support Demand, Not Price
Dairy: A Good Bet in a Bad Economy
Wisconsin's Future: Growth
Keeping Sustainability Real
Nose Dive
Dairy Dives into 2009
Consider This...
 Fulls Vats
Implement Make Allowances ASAP
Security Reforms
Spring Forward
A Week of Clarity

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