May 7, 2018

How Will California's Federal Order Impact Prices?

 |  By: Anna-Lisa Laca

A Federal Order will certainly be a change for California, but the impact may not be great, says Mark Stephenson, a dairy economist at the University of Wisconsin.

“By my calculation [the federal order] will be a small net positive that will be measured more in nickels, dimes and quarters than it will be in dollars per cwt,” he says predicting milk prices in California would go up between 16 and 66 cents.

USDA predicts deviations from the baseline price to go up by an average of 45 cents during the next 8 years if the California FMMO was adopted.  While the impact may not be seen in the milk check, Stephenson says there are other benifits to having the Federal Order in place.

“It puts the largest milk producing state in better competitive alignment,” he says, noting there are currently times when the state and federal milk pricing systems don’t align.

On a national level, Stephenson says the impact will likely be minimal.

“If we were going to talk about something that would really raise the California milk price by a few dollars,” he explains, “then you could imagine that more money would mean more milk which would be a competitive disadvantage for the rest of the country.”

With California part of the Federal Order, Stephenson thinks it will put some smaller plants in a situation of perhaps opting out of being part of the larger pool. According to Annie AcMoody, director of economic analysis for Western United Dairymen, joining the Federal Order will dramatically increase how much milk is de-pooled in the state.

“Under the California system, less than 3% of milk goes to nonpool plants,” she says. “Under a California FMMO, that per-centage would change drastically. While there is no way to determine exactly how much, USDA estimated that on average 42% of manufacturing milk (ie. milk other than Class I) would not be pooled.”