March 15, 2013 — High feed prices in 2012 compounded already difficult times for California dairy producers, still reeling from a collapse of prices in 2009. DairyBusiness Updates’ Dave Natzke joined us on Friday’s DairyLine Radio broadcast to discuss a new report from Rabobank, warning that the state’s dairy industry is at a pivotal point in its future:
In their report, titled “California Dairies: Getting More Moola,” Radobank ag economist Vernon Crowder, and James DeJong, dairy industry analyst, put much of the blame for current problems on the state’s seven-decade-old milk marketing order system.
They say the system has distorted milk prices and revenue distribution, discouraged investment in processing capacity and technology, and encouraged overproduction of milk. And, with prices following the volatility of the Chicago Mercantile Exchange, processors have stayed with staple products, such as non-fat dry milk, butter and cheddar cheese to maintain dependable margins, instead of investing in more innovation that may have put them in better position for export markets.
Due to these factors, the report acknowledged California dairy producers have received an average of $1.50 per hundred pounds of milk less than their counterparts in the rest of the United States, with the gap growing in recent years.
The report noted changes to the California dairy industry will take collaboration between producers and processors. But, that relationship has been strained recently with debate over the value of whey in the state’s Class 4b milk pricing formula. And, another debate is shaping up over transportation allowances, with a public hearing scheduled for April 4.
The news isn’t all bad. The report notes about 20% of California milk production is now exported, and steps are being taken to boost that total. However, the report warned that dairy co-ops must do more, and rapidly, concluding California’s dairy industry is at a pivotal point in determining its future.