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WCMA

Dreams like Idaho

John Umhoefer

John Umhoefer is executive director of the Wisconsin Cheese Makers Association. He contributes this column monthly for Cheese Market News®.

Imagine a place where “fixing” our broken milk pricing system is irrelevant and the only concern is managing dairy growth.

It’s not a dream, it’s Idaho.

The Gem State has soared to become America’s third-largest milk-producing and cheese-producing state, and has thrived in a free market environment; state dairymen have doubled milk production in the 18 years since farmers in the region voted to dissolve a federal milk marketing order in 2004.

This week, the Wisconsin Cheese Makers Association (WCMA) spoke with dairy processors and cooperatives about purchasing milk in this free market state versus purchasing milk in the federal order-regulated Upper Midwest. The contrast isn’t subtle — Idaho milk programs enjoy fundamental advantages in simplicity and flexibility that Midwest milk buyers can only dream of.

Milk pricing and procurement, it turns out, doesn’t have to be complex, unchangeable and government controlled.

Formulas, even federal order formulas in some cases, provide structure in Idaho for milk prices negotiated between dairymen and the large cheesemakers, milk powder and buttermakers in the state.

Formulas find a value for components in milk, then processors work up a basis value or cost of production, and, voilà, milk is priced.

“We price on Class III components as a base and add a basis adjustment, positive or negative. There’s no premiums, no pools and no differences in programs between farms,” one major processor told WCMA.

Idaho isn’t the only oasis of unregulated milk. In 2021, milk marketed through federal milk marketing orders accounted for 61% of all milk sold, USDA reported in May. That means more than two California-fulls of milk didn’t price and pool on a milk order last year.

Places like Idaho, with no aging government-mandated pricing system, offer a blueprint for a free-market future for the dairy industry. More than that, Idaho proves that a simpler, transparent business relationship between dairymen and milk processors can build long-term, stable partnerships — and decades of growth.

“We have end product pricing; some call it cheese yield pricing,” a major cheese producer told WCMA. “We set a realistic make allowance, use CME cash prices. Our formula is based on Van Slyke, like the Class III, but ours is more accurate. We are 100% transparent with pricing — our formula is on our producer webpage.”
Each proprietary and cooperative organization WCMA spoke with emphasized the open communication lines between Idaho dairymen and their milk buyers.

“We meet with our patrons, and we share information and bounce ideas off them. We may not always agree, but we communicate. We talk through ideas and come to solutions,” a processor said.

A cooperative leader agreed: “We have strong, progressive members in Idaho. The negotiated pricing in that area can be more creative than orders, and there’s no impacts from depooling.”

This open, transparent environment — fueled by free-market flexibility — is fundamentally different than the Upper Midwest.

“Midwest producers can have a hard time calculating their basis from the way order pricing and pay programs work,” one processor said. The complexity of pricing in the Midwest breeds skepticism among producers, he added, while dairymen in Idaho know the competitive set and can review each buyer’s pricing program. “We haven’t had a producer leave us in five years,” he said.

With clearer milk pricing comes a healthy use of risk management tools. One processor with farm partners in multiple states noted that hedging is far more common among Idaho dairymen. Farms hedge on their own with milk futures or, in several cases, join their processor in hedging on cheese futures.

Successful communication and partnership have resulted in an abundance of milk in Idaho. “These dairymen are amazing,” one processor stated. “They’ve got genomics and feeding and cross breeding dialed in. We’re never below 4.1% milkfat, even in the hot summer months. They can make milk and solids like never before.”

Across the state, milk buyers have moved to production caps and base/over base programs on milk production. A cooperative milk buyer believes dairy exports are an important part of Idaho’s future. “Exports will become key to utilizing the milk available here. The Idaho model for negotiating milk prices makes more sense for offering stable prices for export customers.”

While dairy organizations like WCMA wrestle with reform ideas for milk pricing and pooling in federal milk marketing orders, the free-market milk buyers in Idaho are busy managing growth.

“Our relationship with our producers is very strong in Idaho,” one major buyer concluded. “The simplicity, the transparency in our pricing is appreciated. We can talk with every producer about our program. We may disagree, but we can talk openly, and we keep moving forward.”

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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