On Oct. 17, the first advanced pricing announcement was released by the California Federal Market Administrator. You can view the two-page document here. Also, recently released was a four-page Market Administrator’s Bulletin that can be read here.
Like the California state system that we are used to, the California Federal Milk Marketing Order (FMMO) announces prices for class I and II milk ahead of the month. It uses formulas to establish these prices based on the average of the first two weeks of the prior month butter, cheese, dry whey and nonfat dry milk prices.
One difference in the FMMO is that class I prices are announced for the Los Angeles County market, which is the highest priced zone in the order. The Class I price in the other zones of the state are lower. These location differentials apply to the prices purchasers of class I milk must pay, but that same differential also applies to the payment to producers or their cooperatives for all the pooled milk you sell. That pool price is based on the location of first receipt of your milk.
The FMMO deliberately sets the highest Class I price in the largest population center of an order to incentivize producers and cooperatives to sell their milk there. Theoretically, that is where the highest demand for class I milk is. Recognition of the location value of milk was somewhat muted in the old California state order by a system of transportation subsidies. Those producer-funded subsidies were used to facilitate the movement of milk to population centers like Los Angeles County.
As more and more milk moved out of Southern California, the cost of the transportation subsidy program to producers became significant. In addition, cooperatives and other handlers actually structured their milk movement plans to take advantage of the transportation subsidy program. With the elimination of the subsidy, milk movement patterns will change and the location of your buyer will play a bigger role in the determination of the price you will get paid for your milk.
If you haven’t already, it would be a good idea to ask your handler how they plan to pay you in this new system.