California Dairy Quota Equity Plunges By Quarter Billion Dollars in December
The average monthly sales price for California quota per pound of Solids Nonfat plunged to $323 in December, a drop of 27%. Collectively, that means California dairy farmers who own quota lost $255 million in equity in December alone.
Since January 2018, the average sales price has dropped $205/lb, or nearly 40%. That’s a loss of equity of $440 million over the past year. While quota is typically held by older, more established dairy farmers, this amount of equity loss matters, says Geoff Vanden Heuvel, director of regulatory and economic affairs for the California Milk Producers Council. “Lenders are terribly nervous,” he says.
The recent drop in quota value was the result of one sale by a retired dairy farming couple. There’s a provision in California law that the state can take back quota with no reimbursement if a farmer has not sold his or her quota within 60 days of no longer selling milk. That provision has rarely, if ever, been enforced. But knowing the provision is on the books, the couple ordered their broker to sell at any price.
Some of the panic may be related to a petition drive launched in November by a group called Stop QIP to end the 49-year-old quota program. The group has presented the California Department of Food and Agriculture with a number of letters calling for the end of the Quota Implementation Plan (QIP), which regulates California’s quota program.
In turn, CDFA has set up a working draft of procedures for submitting a petition to change QIP. Twenty-five percent of California dairy farmers would have to sign the petition for it to move forward.
California’s Federal Milk Marketing Order went into effect last month. Under an agreement with USDA, the State of California maintains and regulates the quota program. To make quota payments, the state deducts $12 million per month from California dairy farmer checks. It amounts to about 38¢/cwt (the exact amount is based on the amount of SNF a farmer sells each month). For the first time, the amount deducted is reported on each dairy farmer’s pay stub. Prior to the establishment of the Federal Order, CDFA made the deduction internally but did not report it to dairy farmers individually each month.
For a dairy milking 1,000 cows per month shipping 2 million pounds of milk, the quota deduction could amount to a $7,600/month payment, or more than $90,000 annually. Those holding quota then get a payment of $1.43 to $1.70/cwt, depending on where their dairy is located within the state.