Wisconsin Ag Connection - Lawmakers, Farm Groups Displeased Over Dairy Pricing Change

Wisconsin Ag News Headlines

Lawmakers, Farm Groups Displeased Over Dairy Pricing Change
Wisconsin Ag Connection - 11/27/2006

Many voices from Wisconsin's various agricultural posts blasted the USDA's announcement last week over a tentative decision on amendments to dairy make allowances within the Federal Milk Marketing Order System. According to the Wisconsin Cheese Makers Association, the agency failed to acknowledge rising costs to produce cheese when called for pricing changes for cheddar cheese, butter, dry whey and nonfat dry milk.

"These manufacturing or make allowances are USDA's estimate of the cost to produce cheese and other dairy products," said WCMA Director John Umhoefer. "USDA established a make allowance for cheese in 2000 and today, after a fifteen month hearing process, the agency has announced a cost to produce cheese virtually identical to the 2000 price. This is a disappointment to cheese manufacturers hoping that the government would recognize that costs have risen dramatically in six years."

As part of the announcement, the USDA moved the make allowance for cheddar cheese to 16.82 cents per pound of cheese, up from the current value of 16.5 cents. They also raised the make allowance to produced dry whey to 19.56 cents per pound, up from 15.9 cents. The make allowance to produce butter rose about one-half cent to 12.02 cents per pound and the cost of making nonfat dry milk rose from 14 cents to 15.7 cents per pound.

Umhoefer says these increases are used in milk price formulas and will reduce the price dairy farmers receive for milk used in cheesemaking by 25 cents per hundredweight, about a 1.8 percent drop in the average price of milk for cheesemaking in the last three years. The changes were made at the request of the National Milk Producers Federation.

Meanwhile, Congressman Dave Obey and Senator Herb Kohl said the changes would hurt the entire dairy industry in Wisconsin, because it would result in reduced milk checks for dairy farmers in the Upper Midwest by millions of dollars while raising prices for farmers in places like Texas.

"What this means is that any increase in fluid milk prices due to the increased Class I differentials will put Wisconsin farmers at an even greater competitive disadvantage than they are now," said Obey. "If this latest USDA proposal is put into effect, fluid milk prices will increase. That will encourage greater production in those areas that produce for the fluid market. However, higher fluid prices will also hold down consumption and the combination of higher fluid milk production and lower fluid milk consumption means more surplus milk will be flowing into cheese production. That will reduce the price farmers in the Upper Midwest get for milk that goes to cheese production."

A Cornell University study commissioned by USDA for this hearing process on make allowances determined that the weighted average cost to produce cheddar cheese in the U.S. is 20.28 cents per pound, more than three cents higher than the government announced last week. California, Wisconsin's close competitor in cheese production, operates a milk pricing system independent from the federal government. This summer, California raised its make allowance for cheddar cheese to 17.8 cents and the cost to produce dry whey to 26.7 cents. These higher margins for California dairy manufacturers mean Wisconsin is handcuffed into a competitive disadvantage by government-set prices, Umhoefer said.

With this decision, Umhoefer said, nearly every cheese factory in Wisconsin will face a government cost of production figure that is lower than their true cost to produce cheese.