california milk pricing california has its own state milk pricing order
TRANSCRIPT
California Milk Pricing
California has its own state milk pricing order
Share of U.S. Milk Production, California and Wisconsin, 1990 & 2000
Year CaliforniaProduction &
% Share
WisconsinProduction &
% Share1990 20.95 Billion
Lbs (14.1%)24.40 BillionLbs (16.5%)
2000 32.24 BillionLbs (19.2%)
23.26 BillionLbs (13.9%)
% Change inproduction
+53.9% - 4.7%
Change in milk production1990 to 2000
Tennessee
Wyoming
Arkansas
Alabama
North Dakota
North Carolina
Mississippi
Missouri
Alaska
Illinois
0-10-20-30-40-50-60
% Change
Largest Per Capita Decreases
21
9
1
38
6
23
13
48
42
10
19
24
33
30
7
25
29
12
5
32
36
17
18
35 41
28
16
27
22
11
4026
15
45
31
20
4
3
46
28
1443
44
39
34
4937
2000 Milk Production RankingTop Ten States Highlighted
495
949
952
238
5,582
755447
588 2,878
349 1,9301,092
2,165
565
732
196375
404
191158
78
4,336
169
1,344
175275
2000 Per Capita Milk Production
154 574
418
247
393389
154
269147
92
148
908
628
255
4,578251
32190
524
6227
140
Per Capita Milk ProductionU.S. Average = 596 Lbs.
Less Than 300 Lbs. (22)300 To 600 Lbs. (12)Greater Than 600 Lbs. (14)
-16-29
-13
+5
+35
+91
-13
-14
-44
+31
+11
+186
+3
-12-14
-5
+13 -32
-44
Percent Change In Per Capita Milk Production
2000 vs 1990
-34 -38
-16-37
-12 -13
+9
+2
-32 -5 -9
-45
-32
-21
-28
-3 +3
+2
+9
-11-17
-36
-8
-31
+5
-21
-10
-19
-21Percentage Changes
Decreasing (34)Increasing (14)
Regional Cheese Production As A PercentOf 1999 Total U.S. Production
With Percent Change In Production: 1999 vs 1994
17%-8%35%
+65%
1%-72%
32%+8%
16%+18%
Share of U.S. Cheese Production, California & Wisconsin, 1990 &1999
Year CA Share WI Share
1990 11.6% 31.5%
1999 17.4% 27.1%
% change inproduction
96.4% 12.5%
Regional Butter Production As A PercentOf 1999 Total U.S. Production
With Percent Change In Production: 1999 vs 1994
36%-18%
10%-17%
8%-0%
16%+6%
31%-7%
Share of U.S. Butter Production, California and Wisconsin 1990 & 1999
Year CA Share WI Share
1990 21.5% 24.6%
1999 26.9% 22.8%
% Change inproduction
22.7% - 9.4%
Regional NFDM Production As A PercentOf 1999 Total U.S. Production
With Percent Change In Production: 1999 vs 1994
69%+41%
7%-31%
4%-55%
4%-47%
16%+28%
Share of U.S. Nonfat Dry Milk Production, California & Wisconsin 1990 & 1999
Year CA Share WI Share
1990 36.7% 5.1%
1999 47.8% 1.5%
% Change inproduction
102.3% -51.3%
California viewed as an early adopter of alternative milk pricing.• 1962 adopted multiple component pricing for
class 1 milk; 1969 for all other classes.• Decoupling class 1 price--class 1 price
determined from economic formula• Advanced pricing of class 2 (not until 1981 in
federal orders)• 1962- Higher minimum standards for beverage
milk• Use of product price formula to establish fat and
solids-not-fat values (not until 2000 in federal orders)
Existing U.S. FDA & California butterfat (BF) & solids-not-fat (SNF) for beverage milk products
Fluid MilkProduct
FDA BF FDA SNF CaliforniaBF
California
Wholemilk
3.25% 8.25% 3.5% SNF
Lowfatmilks
0.5 to 2.0% 8.25% 1.9 to 2.1% 8.7%
Skim milk Less than0.5%
8.25% Less thanor equal to
0.25%
10.0%
9.0%
Five classes of milk:
• Class 1: Fluid products, sterilized or UTH milk (in-state), and lactose reduced milk
• Class 2: Fluid creams, sour cream, cottage cheese, buttermilk, sterilized creams, yogurt, and UHT milk (out-of-state)
• Class 3: Ice cream, ice milk, light dairy desserts, frozen mixes, frozen yogurt and other frozen products
Classes continued:
• Class 4a: Butter and dried milk
• Class 4b: Cheese
Calculating 1a price:
• 1a minimum price for milkfat
- use higher of USDA support price or CME butter price
- make allowance is subtracted
-results multiplied by yield factor of 4.2 pounds
1a pricing continued
• Minimum price for solids-not-fat:
- use higher of USDA support price for nonfat dry milk or nonfat dry milk price CA plants sold f.o.b.
- Minus a make allowance
-result multiplied by a yield factor of 8.613 pounds of nonfat dry milk (also reflects the value of buttermilk solids)
Calculating 1b price: (three steps)
• Step 1: Base Price
- USDA support price for 40-pound cheddar blocks X (1.0377 - make allowance) X 9.8
1.0377 is a moisture adjustment factor
9.8 is cheese yield
Step 2: Adjustment to base price:
- Base price is adjusted upward or downward in direction proportion to the relationship between the CME 40-pound cheddar block price and the USDA support price.
If CME price higher than support price adjusted upward, if lower, downward
Step 3: Value of whey cream
- whey cream as a by product of cheddar cheese is imputed and added to the adjusted price in step 2.
- (CME butter price - 9 cents) - make allowance x 0.27 yield of whey butter = adjustment to add
The final class 4b hundredweight price is converted to fat and solids-not-fat as follows:
• Class 4b fat is first set equal to to class 4a fat price
• 4a fat price X 3.6 pounds of fat = total fat value per hundredweight of milk
• Final class 4b price minus total fat value per hundredweight divided by 8.7 = 4b solids-not-fat price
• The final 4b price is reported on a 3.5% fat basis by fat price X 3.5 plus the SNF price by 8.7
Class 2 and class 3 prices:
• Class 2 and class 3 prices are based directly on class 4a component prices with fixed differentials added.
• Class 2 and 3 prices are set in advanced for a two month period
Class 1 price:
• A class 1 base price is set.
• This class 1 base price is adjusted with a Commodity Reference Price (CRP) which represents the wholesale revenue derived from a hundredweight of milk used to make butter/powder or cheese. A separate CRP is calculated for cheese and butter/powder
Butter/powder CRP:
• CME butter price
• X 4.2 yield
• Plus California nonfat dry milk price X 8.613 yield
Cheese CRP:
• CME 40-pound cheddar block price
• X 9.8 yield
• Plus (CME butter price - 9 cents) X .27 yield
Note: the higher of these two CRPs is used
Class I pricing continued:
• Changes in the values of class 1 components are calculated for a two-month period by averaging two month’s CRPs lagged three months, subtracting the statewide base price per hundredweight and allocating the difference to the components (MF, SNF and a fluid carrier) in proportions of 40:40:20
Example class 1 adjustment:
• Assume calculating two-month class I price for June and July
• The March and April CRPs averaged ($13.58 + $13.85)/2 = $13.7150 per hundredweight
• $13.7150 minus statewide base price of $10.1784 = $3.5366 which is allocated as follows:MF: (0.40 X $3.5366)/ 3.5 = $0.4042
SNF: (0.40 X $3.5366)/8.7 = $0.1626
Fluid carrier: (0.20 X $3.5366) = $0.0081
• These calculated changes are added to the respective component base prices for June & July
Pooling:• California milk producers receive a blend price
based on market-wide utilization of milk by class• However, producers are paid different blend
prices depending upon their production relative to individual quotas and production bases.
• Production base is total fat and SNF sales expressed on a daily basis
• Quota is class 1 MF and SNF sales• Quota may be traded among producers--sold in
dollars per pound of SNF• Some producers have no quota
Pooling continued:
• Individual farm production not restricted by quota• A uniform price is calculated• Subtracted from the revenue of all 5 classes is
total revenue from quota milk (quantity of quota milk X $1.70 per hundredweight)
• The residual is divided by total quantity of milk for the month to arrive at a non-quota price per hundredweight
• Thus, the difference between quota and non-quota milk is fixed at $1.70 per hundredweight
California class 4a price and federal order Class IV price, 2000
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Do
llar
s P
er H
un
dre
dw
eig
ht
CA 4aC IV
California 4b price and Federal Order Class III price , 2000
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Do
llars
Per
Hu
nd
red
wei
gh
t
CA 4b
C III
California class 1 price versus Upper Midwest Order Class I price, 2000
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
$15.50
$16.00
$16.50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Do
llars
Per
Hu
nd
red
wei
gh
t
CA 1C I
Utilization of California Milk
• Class 1 = 20%
• Class 2 & 3 = 10%
• 4a = 30%
• 4b = 40%
Mailbox milk prices, Average all federal orders, Upper Midwest order and California
1999-00
$9
$10
$11
$12
$13
$14
$15
$16
$17
$18
Jan-9
9
Feb-9
9
Mar
-99
Apr-99
May
-99
Jun-9
9
Jul-9
9
Aug-99
Sep-9
9
Oct-9
9
Nov-99
Dec-9
9
Jan-0
0
Feb-0
0
Mar
-00
Apr-00
May
-00
Jun-0
0
Jul-0
0
Aug-00
Sep-0
0
Oct-0
0
Do
llars
Per
Hu
nd
red
wei
gh
t All markets
Upper MidwestCalifornia