What A Federal Order in California Means to the Rest of U.S.

Published on: 13:30PM Aug 24, 2015

With California producing 20% of the nation’s milk, when California hiccups, the rest of the country gets queasy.

So when hearings start Sept. 22 on four Federal Order proposals for the Golden State, hold on to your belly buttons.

USDA has already ratcheted up anxiety levels by releasing a 45-page econometric analysis of the four proposals.The analysis not only looks at their impact on California, it also projects what will happen nationally, in each Federal Order and on imports and exports. Your eyes will go blurry and you’ll get a little sick to your stomach as you try to digest all of this data. 

So I’ve summarized what the USDA model estimates to be the impact on the All-milk prices for two (of the four) proposals. The first is the Co-op proposal, submitted by California Dairies, Inc., (CDI) Dairy Farmers of America (DFA) and Land O’Lakes (LOL). The second is the processors’ proposal, submitted by Dairy Institute of California.

                                               All-Milk Prices

                                                      $/cwt

Federal Order              Co-op Proposal           Dairy

                                                                                  Institute

                                                                                  Proposal

United States                         .28                                  .07

Northeast                              -.12                                -.07

Appalachia                           -.13                                -.04

Florida                                    -.22                                -.02

Southeast                              -.24                                -.23

Upper Midwest                    -.11                                 .24    

Central                                    -.11                                 .02

Mideast                                  -.12                                 -.05

Pacific Northwest               -.12                                 -.03

Southwest                              -.11                                  .09

Arizona                                    -.06                                 -.18     

California                             1.03                                  .10

The reasons these prices would change is that higher milk prices in California mean higher milk production. USDA estimates the higher California milk prices under the Co-op proposal could bring an additional 540 million lb. to market, on average, over the 10 years of the analysis (2017-2024).

Some take issue with this logic, noting that the three major co-ops in the state, CDI, DFA and LOL, all have base plans in place. These three co-ops market 80% of the state’s milk, so the base plans would keep a lid on production.

That’s true, to a point. California produced 42 billion lb. of milk last year. Its monthly year-over-year production has been down roughly 3% in 2015, which is about 1.25 billion lb. on an annual basis. (California is down 650 million lb. of milk through the first six months of 2015.)

So California producers could increase milk production 540 million lb. and not even make up their production losses this year. On a per cow basis, that’s just 300 lb. more milk per year—or 1/lb/cow/day in a 305-day lactation.

Remember, too, that all of this is extremely speculative:

• No one knows what the final proposal will look like. USDA must first hold the hearing in September, then decide if a Federal Order makes sense for the state, and if it does, what provisions should be included based only on evidence and testimony from the hearing.

•  The economic model USDA used to do this analysis is brand new. Independent economists have not yet had the chance to see “what the model is and isn’t,” says Mark Stephenson, a dairy economist with the University of Wisconsin. “Some of the impacts seem awfully large,” he says.

One thing is clear: All eyes will be on Clovis, Calif., September 22 when the Federal Order hearing begins. Bring Maalox.