CDC Urged Dairy Farmers to Oppose Make Allowance Increases

CDC positions on the USDA Recommended Decision:

1) Milk Composition Factors: Update the factors to 3.3 percent true protein, 6.0 percent other solids, and 9.3 percent nonfat solids. SUPPORT

2) Surveyed Commodity Products: Remove 500-pound barrel cheddar cheese prices from the Dairy Product Mandatory Reporting Program survey and rely solely on the 40-pound block cheddar cheese price to determine the monthly average cheese price used in the formulas. OPPOSE – USDA SHOULD ADD MOZZARELLA AS CALLED FOR IN CDC'S PROPOSAL #6 TO INCLUDE MORE END PRODUCT PRICES IN THE END PRODUCT PRICING FORMULAS.

3) Class III and Class IV Formula Factors: Update the manufacturing allowances to: Cheese: $0.2504; Butter: $0.2257; NFDM: $0.2268; and Dry Whey: $0.2653. OPPOSE – IT EQUATES TO AN AVERAGE OF MORE THAN A 30 PERCENT INCREASE IN THE MAKE ALLOWANCES

Class III Make Allowances:

Cheese .2003 increased to .2504 (+.0501 or 25%)

Dry Whey: .1991 to .2653 (+.0662 or 33%)

Class IV Make Allowances:

Butter .1715 to .2257 (+.0542 or 32%)

Nonfat Dry Milk .1678 to .2268 (+.059 pr 35%)

The Recommended Decision also proposed updating the butterfat recovery factor to 91 percent from the current 90 percent. SUPPORT

4) Base Class I Skim Milk Price: Update the formula as follows: the base Class I skim milk price would be the higher-of the advanced Class III or Class IV skim milk prices for the month. In addition, adopt a rolling monthly Class I extended shelf life (ESL) adjustment that would provide for better price equity for ESL products whose marketing characteristics are distinct from other Class I products. SUPPORT RETURN TO “HIGH OF” ON ALL CLASS I MILK

5) Class I differentials: Update the Class I differential values to reflect the increased cost of servicing the Class I market. The decision specifies the county-specific Class I differentials. SUPPORT

6) Urged USDA to adopt California Dairy Campaign's proposal #6 to add mozzarella to the Class III milk price. Since the hearing began, mozzarella has been added to the Global Dairy Trade Index and is trading today at $2.18 per pound. This week, GDT announced additional types of mozzarella that will be traded. Dairy farmers should be paid based on mozzarella prices, yields, and volumes. SUPPORT

The U.S. Department of Agriculture (USDA) Recommended Decision included across-the-board make allowance or manufacturing cost allowance increases. The make allowance is the amount that dairy producers pay milk handlers to process milk into dairy products. The 332-page decision includes changes to the formulas to increase the make allowances: 

· Increasing the Class I Make Allowance by 82 cents.

· Increasing the Class II Make Allowance by 74 cents.

· Increasing the Class III Make Allowance by 89 cents.

· Increasing the Class IV Make Allowance by 74 cents.

If the make allowances increased as proposed by USDA, the Class III cheese make allowance will exceed $4 per cwt, and the Class IV Butter/ NFDM make allowance will reach nearly $3 per cwt. Almost 80 percent of all milk produced in California goes into Class II, III, or IV, so the impact of these significant make allowance increases is greatest here. The USDA economic analysis includes a chart (below) that shows California milk prices would have decreased by 20 cents if the recommended decision had been in effect from 2019 to 2023.

Federal order make allowances had never increased by more than 35 cents per cwt at a time. The increase proposed by USDA and supported by processors raised make allowances by more than twice that much. USDA proposed increasing the make allowances based on voluntary unaudited processor cost surveys. The most recent and "comprehensive" voluntary cost survey included just 17% of all plants across the county, yet USDA moved ahead with hefty make allowance increases.