CA Dairy Industry UpdateAmerican Society of Farm Managers and Rural

Appraisers

April 25th, 2019

Milk production 1998-2008-2018

Milk production

California: fewer dairies; larger herds…The trend continues?

•Number of dairies in gradual decline•2,157 dairies in 2001•1,496 dairies in 2013•1,470 dairies in 2014•1,438 dairies in 2015•1,392 dairies in 2016•1,331 dairies in 2017

• Cows per dairy continue to increase• 721 cows per dairy in 2001 • 1,186 cows per dairy in 2013• 1,217 cows per dairy in 2014• 1,215 cows per dairy in 2015• 1,249 cows per dairy in 2016• 1,304 cows per dairy in 2017

Very slow declining trend recently

Exports finally up a bit yoy, but 2015 was down 70% yoy

Exports finally up a bit yoy, but 2015 was down 70% yoy

Exports finally up a bit yoy, but 2015 was down 70% yoy

New Order –Federal Milk Marketing Order #51• Main differences with current system

• Different class prices that are higher than California’s current minimum prices

• Only Class I is pooled and regulated by USDA• Processors have the ability to operate outside of minimum prices• No transportation allowances and fortification allowances• Quota will be deducted on producers milk checks and will be a program

(Quota Implementation Plan) run by CDFA

California class prices vs FMMO class prices

Price $22.98 $20.70 $22.13 $20.31

Gross Pool RevenueJan2014 = $784 million

Class 1 Class 2 and 3 Class 4a Class 4b

Quota premium ($13 million)

Regional quota adjusters

12.5% 8% 34.9% 45%

Price producer receive Net dollars/net pounds ($20.83)

XX

I II IV III

Price $22.98 $20.70 $22.13 $20.31

Gross Pool RevenueJan2014 = $784 million

Class 1 Class 2 and 3 Class 4a Class 4b

12.5% 8% 34.9% 45%

Price producer receive Net dollars/net pounds ($20.83)

I II IV III

• Only Class I is obligated to the pool and regulated by USDA• Processors have the ability to operate outside of minimum prices

Pros of the New FMMO

• Only Class I is obligated to the pool and regulated by USDA• Processors have the ability to operate outside of minimum prices

Cons of the New FMMO

• Cooperatives –which represent almost 80% of the state’s milk, can play the pooling game well

• In some cases, cooperatives that have both Class III and Class IV utilization can play the pooling game exceptionally well and to producer’s advantage

• Timing is critical, as all players need to understand the market and the re-pooling rules to perfection

Ca Dairy’s Pricing Survival is Dependent on the Pooling Game

California pooled milk volume

November 2018

December 2018 March 2019

CDFA 2018

~$12 million is needed to fund the quota program

CDFA calculates total pool monies

Quota premium dollars are taken out of the pool to pay quota holders

CDFA calculates the overbase price. Producer sees the overbase price on his milk check.

Grade A producers receive a milk check (based on the FMMO blend or a direct contract with their processors)

Quota premium dollars are taken out of the producers’ milk check

CDFA redistributes quota premium dollars to pay quota holders

CDFA Prior to FMMO FMMO/QIP

Historical approach:Overbase : $20.00 Quota Assessment on milk check: $0.00Net Milk Price: $20.00

New (in your face) approach:Producer price : $20.38 Quota Assessment on milk check: $0.38Net Milk Price: $20.00

• Only Grade A market milk is assessed, Grade B is not• Producer’s can now see –every month, the precise amount being deducted

for the statewide quota assessment• An organized group of overbase producers has filed a petition with CDFA to

terminate the QIP• Validation of the petition is currently pending • Should a referendum be called, there are high thresholds needed to pass• 51% of eligible producers must vote. Then, of those voting, 51% of producers

representing at least 65% of the milk, or 65% of producers representing at least 51% of the milk, must vote yes

Serious Quota Rumblings in the Industry

• Feed costs remain over 50% of the cost of production for producers• A majority of milk production in the state lies in the white areas • The future of surface water reliability is a major concern for the state’s dairy

industry• Feed valuation must be considered as part of the REGULATORY obligation

dairies need to operate• Dairy’s general order requires land application of manure

Multiple Cost of Production Challenges

• 94% of the nitrates monitored by the state’s dairy industry are coming from the land application of manure

• 4% is attributed to lagoons• WUD is supportive of a statewide solution to bring certainty to valley

residents and to the industry • The long term solution to nitrates can be found through the regulatory relief

of CVSALTS (Central Valley Salinty Alternatives for Long Term Solutions)

Dairy has a nitrate problem –but so does everybody else

• Dairy is well matched with a majority of voters top priorities• The space that needs to be claimed is perfectly politically matched• Consistent and tactical political strategy is appropriate to stop the regulatory

cost of production

Dairy’s COP Future Depends on More Strategic Policy Choices that MIRROR Political Strategy

Anja Raudabaugh, CEOaraudabaugh@westernuniteddairymen.com(916) 532-9974

Annie AcMoody, Economistannie@westernuniteddairymen.com(765)543-4483

Thank you!