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July 2013 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

California’s Dairy Pricing Compromise

Jul 26, 2013

Dairy producers have jumped on a processor-proposed milk price increase. Now it’s up to state officials.

Last week, California dairy farmers submitted a proposal to their Department of Food and Agriculture that would raise state-mandated minimum milk prices about 65¢ to 70¢/cwt. for 4b cheese milk. That translates to about 30¢ to their overbase blend price, or some $5,500 more per month for a 1,000-cow dairy.

The increase would make up some of the difference between California’s 4b price and the Federal Milk Marketing Order’s Class III price, but by no means all of it. In June, for example, the California 4b price was $2.11/cwt. less than Class III. Over the past three years, it has averaged about $1.70 less.

Those lower prices, coupled with ethanol-fueled feed prices, have put California dairy producers in a world of hurt. It might be that dairy processors, who actually proposed this solution, are seeing the light.

It’s estimated that California dairy farmers have lost $2 billion collectively, and on average, $1+ million individually, over the past five years. There are nearly 400 fewer California dairy farmers in business than there were five years ago, and nearly 60,000 fewer cows. Because of more milk per cow, state milk production is still about 1% higher than it was in 2008.

But for the first six months of 2013, California milk production trails prior year output by 634 million pounds, a 2.9% decline from 2012’s first half yield. For comparison, that half-year decline is more than the total annual milk production of Maine.

California dairy producers tried, and failed, to get legislative relief this past session. California Assembly member Richard Pan (D-Sacramento) was instrumental in negotiating the current deal, says Rob Vandenheuvel, general manager of the California Milk Producers Council. The Dairy Institute of California, which represents state dairy processors, sent a letter to Pan July 8 outlining what would be an acceptable compromise.

Dairy producers jumped on the proposal, since it doubles what the California Department of Food and Agriculture (CDFA) had approved. Now it’s up to CDFA to decide whether it will hold a hearing. "We’re still a long way from the finish line," says Vandenheuvel. But he believes the proposal could be in place early this fall, if CDFA acts quickly.

The proposal is just a temporary, one-year fix. But it allows California dairy farmers time to study other options, including joining the Federal Order system. In the meantime, it’s better than nothing. "And our cheesemakers will still have the lowest cost milk in the country," says Vandenheuvel.

Read more on California’s milk price compromise here

Despite What You've Heard, Obamacare Still in Play

Jul 15, 2013

The Affordable Care Act isn’t going away. In fact, it’s just starting.

Many a large dairy farmer with 50 or more employees exhaled a huge sigh of relief earlier this month when the employer mandate requiring health insurance was delayed until Jan. 1, 2015.

While it offers a reprieve, it is only that. The Affordable Care Act (ACA), or Obamacare as many prefer to call it, is alive (if not well) and kicking.

And here’s the thing: Even though large-farm employers received the reprieve, employees did not. Unless an employee’s income is less than $9,350 per year ($18,700 for a family), he or she will be required to obtain medical insurance somehow, someway, by Jan. 1, 2014 or face a penalty.

Granted, the penalties are miniscule in 2014 ($95 per adult, up to $285 per family, or 1% of family income, whichever is greater). But those penalties escalate to $325 per adult (or up to 2% of family income) in 2015 and $695 per adult (or up to 2.5% of family income) in 2016 and beyond. These, of course, are paltry penalties given the cost of health insurance. But employees will be forced to pay them if they cannot prove coverage—plus all health care costs as they occur.

Some farm employers with less than 50 full-time equivalent workers (full-time is defined under the ACA as 30+ hours week), might be tempted to drop the insurance they now offer to employers. It’s likely insurance premiums will continue to rise, so the thinking is that it will be cheaper to simply offer the dollars now paid for insurance to employees as a straight wage. Employees, in turn, could then purchase their own health insurance with that money.

"Some employers might view the [Federal or state] insurance exchanges as a safety net, which might provide a cheaper option," says Charles Stevens, an attorney with Michael Best and Friedrich, LLP, based in Milwaukee, Wis.

But the exchanges are still being set up, and premiums will depend on the age and income of the individual. At this point, it’s unknown whether the exchanges will offer viable, affordable products, he says.

Plus, any increase in wages will be subject to income taxes, social security, Medicare and retirement plan contributions. And if an employee’s earnings increase, disability benefits under worker’s compensation laws might also jump, potentially causing premium increases.

And then there the health/welfare/recruitment/retention component. If you stop offering health insurance as a benefit and a neighboring dairy offers it, will you lose employees?

None of these are simple decisions. The only prudent thing is stay in close, frequent contact with your newest best friend—your health insurance provider. Obamacare isn’t going away. In fact, it’s just starting.

You can read more on the Affordable Care Act here and here.

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