To (4b) or not to (4b): that is the question

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By the end of 2012, an estimated 100 of California’s dairies will shut their doors for good ― thanks to high feed cost, not enough time to recover from the disastrous year of 2009, and the state’s milk-pricing system.   

Monday, California’s Class 4b milk-pricing formula was the focus of a Wall Street Journal article. For more on that article, click here

Many dairy farmers don't like the 4b formula and would like to see the value of whey changed so it more closely aligns with the federal order system. 

However, the milk-pricing system is just part of the problem.

Leslie Butler, an economist at University of California at Davis, suggests that aligning California’s milk-for-cheese prices with those on the federal level may not be enough to save the struggling industry.

High feed cost associated with this year’s historic drought alone has driven many dairies to the brink of bankruptcy.  

"Supply is shrinking here because milk per cow is going down — feed costs are so high here," Butler told The Wall Street Journal.

Yet, the Class 4b price is still an important factor, points out Rob Vandenheuvel, general manager of the Milk Producers Council in Ontario, Calif.

"A Class 4b price that is closer to the Federal Order Class III price would have had a huge impact on California producers, particularly in being more prepared for 2012 (following a devastating year in 2009)," he told Dairy Herd Network.  

"Had the California Class 4b price been in closer alignment with the Federal Order Class III price, cheese-makers would have had to put another roughly $400 million into the pool," Vandenheuvel says. "Would the $400 million have repaid the 2009 debt? No. But that's another $400 million that would have at least put California dairies in a better position going into 2012."

2012 would have been a bad year regardless, Vandenheuvel acknowledges. "But our California dairy farmers would have been better equipped -- and, for many dairies, it would have been the difference between a devastating year (which we had) and an uncomfortable one."

For more on the Class 4b situation in California, click here.



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