What USDA Will Decide
Biggest Flaws Won't Be Addressed
Volume 131, No. 35, Friday, March 2,
2007
USDA initiated its second phase of remodeling
for the Class III and Class IV milk price formulas in Strongsville, OH,
on February 26. WCMA participated in the first two days of this sparsely-attended
public hearing.
Progress was slow and after a week of testimony, USDA determined that it will have to reconvene for one or two more weeks in April.
As a time-saver, WCMA offers here a summary of what USDA will decide months from now based on countless hours of testimony, number-crunching and substantial legal fees.
Hearing Decisions
On or about November 2007, USDA will announce recommended changes to the price formulas for milk used to make cheese (Class III milk), and milk used to make nonfat dry milk and butter (Class IV milk). The federal agency will announce changes that have a net impact of plus or minus 10 cents on the all-milk price paid to dairy producers.
More specifically, USDA will make these decisions:
•Bring “new” 2005 manufacturing cost data from California into the calculation
of make allowances for cheese, butter, nonfat dry milk and dry whey.
The data will be selected in a manner to minimize impact on farm milk
prices. The data will be two years old when the revised price
formulas take effect.
•No change to yield factors in these two milk price formulas, including no change
to the recovery of milkfat in cheesemaking (currently expressed as 90
percent).
•No change to the current method of pricing whey cream using Grade AA cream prices,
despite complete industry awareness that whey cream always earns less
than Grade AA cream.
•Will continue to recognize farm-to-plant shrink (milk loss) in the formulas.
•Will continue to use block and barrel Cheddar prices in the Class III formula,
but instead of adding 3 cents to the barrel price, will reduce this to
1.5 or 2 cents.
•Will offer favorable comments regarding the National Milk Producers Federation
concept of creating a monthly energy adjustor in the formulas, but will
decide not to implement this idea.
•Will continue to pay farmers a Class IV price that assumes that all the milkfat
in this milk stream becomes butter and all the solids become nonfat dry
milk, when in fact a significant amount of these components end up in
low-value buttermilk or lost in processing.
•Will continue to use the NASS price series rather than spot market prices at
the Chicago Mercantile Exchange.
•Will accept industry’s suggestion to use the fee collected by market administrators
to update the cost of production study created by Cornell University.
Will execute this survey every other year, rather than annually.
•Not accept Dairylea’s idea to calculate an “add-on” price that dairy manufacturers
could put on their product invoices when costs of production rise.
The idea is that an “add-on” would remain separate from make allowances and would not be counted in the NASS product price surveys. The idea is that buyers will gladly pay this add-on, but will not be required to pay it. (It’s
a silly idea.)
That is what USDA will do.
The Missed Decision
What the hearing will fail to address is the most pressing problem with the Class III milk price.
The value of dry whey is embedded in the Class III milk price, and that price is skyrocketing. A majority of cheese manufacturing plants are negatively impacted by this record high dry whey price, and there is concern that the Class III milk price is now and will continue to be higher than the value of cheese and whey.
Most Wisconsin cheese factories, an estimated 90 percent, do not make
dry whey. Placing dry whey in the milk price paid to farmers was always
a mistake, but the record high price for this product makes the Class
III unbearable.
Dozens of Wisconsin cheese plants sell wet whey or wet condensed whey
for a fraction of the dry whey price. And today, even cheese manufacturers
making WPC are earning less total dollars than the handful of companies
that dry whey.
That’s right, dry whey is returning more dollars than the so-called “value-added” whey
products.
Adding dry whey to the Class III milk price never made sense for two reasons:
1. USDA had to know that not every cheese plant in the US would earn the dry whey price. Dryers are a multi-million dollar investment - impossible for medium and small plants. By their nature, dryers should be large and rare, running high volumes of product from multiple plants (but returning the dry whey price only to the owner of the dryer).
2. Why should the dairy producer snag the value of this byproduct? Does
a corn grower get a “milk-value” added to his corn price because his
corn will be fed to dairy cows vs. pigs? Passing through each processor
innovation to the dairy producer stifles research and development, as
well as the incentive to adopt new technology.
As USDA tinkers with the Class III and IV milk price formulas this year,
the biggest flaw in the formulas will not be addressed. It will be a
difficult year for cheese makers.
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
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