Federal Milk Marketing Order in California in Effect Nov. 1

Questions Arise Regarding Milk Quota

Edited by Patrick Cavanaugh

Dairymen and women throughout California are working hard to provide milk and other dairy products for consumers in California and the world. Because the industry has struggled over the past decade with price swings that have often landed dairies in red, many dairies have gone out of business. Still, other operations relocated to others states where regulations are a fraction of what they are in California.

In June 2018, California dairy producers voted to establish a new Federal Milk Marketing Order (FMMO) for the state. The vote was a paramount step in a long process that would culminate with the new order taking effect on November 1. The order will adopt the same dairy product classification and pricing provisions currently used throughout the FMMO system.

California accounts for more than 18 percent of U.S. milk production and is currently regulated by a state milk marketing order administered by the California Department of Agriculture (CDFA). Once this new FMMO takes effect, more than 80 percent of the U.S. milk supply will fall under the FMMO regulatory framework.

Western United Dairymen is a trade association based in Modesto. Annie AcMoody is the Director of Economic Analysis. She explained that there have been questions from the industry regarding the upcoming FMMO.

Among the often asked question revolves around when the state switches to FMMO in November, what will happen to their quota if a dairy ships milk out of state?

Annie AcMoody: When our California state system goes away to make way for the Federal Milk Marketing Order (FMMO) in November, the Quota Implementation Plan (QIP) will be the language in place to ensure the quota system’s smooth transition into the FMMO system.

When we enter that new world, all market milk received from California producers at a California plant will be assessed for quota. By “received”, the language defines “to convey milk physically into a milk plant where it is utilized within the plant, or stored within such milk plant and transferred to another plant for utilization. This means that a milk truck driver cannot drive by a plant, wave hello to an operator, and keep on going out of state and still call this milk received in California. Basically, if your California milk leaves the state, you will not be assessed for quota.

But you also will not be paid for it. But, if your milk is 60% quota and only 40% of your milk goes out of state, you will be assessed on 60% of your milk and get paid quota on that same 60%. If your quota covers 100% of your milk and 40% of your milk goes out of state you will be assessed on 60% of your milk and get paid quota on that same 60%. In this instance, one could wonder if it makes much sense to keep your quota.

While it may not make much economic sense to hold on to quota you are not paid for, some reasons may validate that decision (perhaps it is expected milk will be shipped to a California plant in the near future). If you were to decide to hold on to that quota, it is important to keep in mind that “if quota is not made active by shipments of market milk to a California plant or cooperative association or is not transferred within the 60-day period, such quota shall revert to the Department”.

This excerpt from the QIP means that if your quota milk is not paid on for over 60 days, you will lose it, so you better sell it. This is likely going to be an issue if you ship to a proprietary plant and all your milk goes out of state. If you ship milk to a cooperative, there is more flexibility because that coop has the ability to combine quotas assigned to it by its members.

So as long as the quota total within the coop is not larger than the total amount of market milk produced and received in California, then there should be no issue for you as a quota holder.

What 
is 
defined 
as 
market 
milk?


Answer:
 Grade A milk.

If your milk is Grade B, you cannot have quota now and will not be able to under the QIP. You will not be assessed for it either. Currently, only around 3% of the milk in California is Grade B. WUD will keep an eye out on this topic to ensure that percentage does not deviate significantly. As a reassurance, this is not something that could grow from 3% to 50% in a month since fluid milk is not allowed to take in Grade B milk and the three largest coops in the state (CDI, DFA and LOL) committed to not taking in any more Grade B milk after the transition to the FMMO.

Young Dairy Owner Plans to Thrive in Future

Nevin Lemos Prefers Jersey Cows

By Patrick Cavanaugh, Editor

Nevin Lemos could be the youngest person to own a dairy in California. The 21–year-old owns Lemos Jerseys in Stanislaus County.

Lemos is a fourth-generation dairyman east of Modesto in the community of Lockwood. He grew up on his family’s dairy, and now he’s on his own. His family’s dairy is Lockwood III dairy, which is about five miles from his dairy.

“I’m 21 years old, and I decided to start my own. I wanted to expand the business, and get a little bigger so we can all stay in business, be competitive,” Lemos said.

“We have a plan someday to consolidate the two, and this was our way to grow.”

“It’s my baby here, my business, my passion here,” Lemos explained.

He thinks that it’s a good time to get into the dairy business.

“I’ve had some dairyman that I look up to, and they gave me some advice that even though the milk price is down, this is the best time to get started,” he said.

“That’s if you can … weather through some of the bad times because it’s a long-term investment. This is not a business that you get into for a short while, so if you can buy the cattle at a reasonable price and keep that input down, you’re in pretty good shape,” Lemos said.

His operation is 400 Jersey cow dairy with a double six-herringbone parlor.

“You know, my parents have the Holsteins. I’ve grown up around the Holsteins all my life. I showed Holsteins in 4-H growing up and love the Holstein breed but decided to go with the jerseys for a few reasons. One is they’re high in fat and protein components. I ship to Hilmar Cheese, so there’s good incentive there to get a premium off the fat and protein. Also with the reproduction, the Jerseys breed back so well.”

Lemos said he gets a 30% pregnancy rate.

A lot of the dairy cow feed is grown around the dairy operation.

“My landlord farms the 50 acres with the dairy. And I purchase the feed from them,” Lemos said. “Of course, that’s one of the significant inputs into the dairy. Feed is a bit of a high right now with exports. I put all my corn silage in Ag-Bags … to minimize my shrink, and that’s been going pretty well.

Lemos said in June, he can say he’s been going after it and his dairy for one year, and he knows he’s going to keep on going.

“I will most definitely keep going. Just getting started is the most challenging part, especially in a year like this year. I’m breaking even … if not slightly in the black. But I look forward to seeing what it does in years to come,” Lemos said.

Just building the herd and establishing it, Lemos is going to sit on some money for a little while before he starts to see it again.

Still, he said of operating his own dairy at 21 years old, “It’s the dream, my passion, it’s really what I love, and I would not have it any other way.”

Dairy Prices Still Low

UC Davis’ Bees Butler on Low Dairy Prices

 

By Laurie Greene, Editor

 

As previously reported, the dismal below-production-costs dairy prices in California—the #1 dairy state—as well as in the rest of the nation, emanate from excessive inventory and slumping sales, particularly in the export market.

Leslie (Bees) Butler, a UC Davis Cooperative Extension specialist and lecturer in the Department of Agricultural and Resource Economics, explained why dairy producers don’t cut back on milk production. “It is easier said than done,” he said, “and for many producers, it comes down to an income problem. Most production units are set up on a certain sort of ‘scale,’ if you like. So if I am all set up ready to milk, let’s say, 800 cows, or 1000 cows, and then you come along and tell me, ‘Well, you ought to reduce it a bit.’”

“Quickly, I, the dairyman, have to think of what I can do,” said Butler. “There may be a couple of things I can do. First, I can get rid of some cows, my lowest producing cows. You can do that, but it would be a temporary solution to the problem. The second is don’t add those high-producing heifers back into the herd, but they are the most efficient cows. So as you do add them in, you have to cull more lower-producing cows. Many heifers are much better producers than their mothers, so it just reduces the lifecycle of the poor mom.”

“And of course, cash flow in the dairy business is so important,” emphasized Butler. “You know there is a limit to how much a dairy farmer can reduce his income without impacting too seriously his ability to pay off loans, etc.”