Deal proposal for dairy producers


Issue Date: May 14, 2008
Christine Souza

Dairy producers seeking a new home for their milk after their contract was terminated by Crystal Cream & Butter Co. are optimistic about a proposed deal that would provide milk to Hilmar Cheese Co. for six months.

A Ripon milk brokering company has a deal on the table to purchase milk from 21 dairy producers whose contracts are set to be terminated on June 30 following last year's sale of Crystal Cream & Butter Co. in Sacramento.

"What is being proposed may be a short-term fix for these folks, which gives them some breathing room until they can figure something else out long term. Some of these producers had been shipping milk to Crystal for almost 40 years," said Western United Dairymen Chief Executive Officer Michael Marsh. "I applaud Hilmar Cheese's ownership for making room for these folks who were in a very difficult situation."

Milk Movers of America, LLC in Ripon is currently presenting the dairy farms with an offer to purchase their milk that would be sold to Hilmar Cheese Co., the world's largest single-site cheese and whey products manufacturing operation located in Hilmar. According to Marsh, the proposal states "Milk Movers of America has reached an agreement with Hilmar Cheese to accept six loads of milk daily for the Crystal producer milk." The contract would begin July 1 and would last for a period of six months ending on Dec. 31. Hilmar Cheese Co. could not be reached for comment.

The dairy producers, located in Sacramento and San Joaquin counties, were notified last December that their contracts with HP Hood LLC, a Massachusetts-based dairy operator, would terminate this June. HP Hood bought Sacramento's longtime family-owned Crystal Cream & Butter Co. last May. The company sold the Crystal brand to Foster Farms Dairy of Modesto in October. As a result, one dairy producer sold out and the remaining 21 put their names on waiting lists for other creameries.

The contract offered by the Milk Movers of America indicates that Hilmar Cheese will accept six loads of milk per day, which pencils out to 240,000 pounds a day. The dairy operators collectively produce up to eight loads of milk per day. Skip Bowe of Milk Movers of America confirms that the company plans to purchase the additional daily loads of milk for the six-month period.

Some of the dairy producers are rumored to have signed contracts with Milk Movers of America, while others are looking at other opportunities. One option under consideration is to purchase and refurbish a closed cheese plant where they could process the milk as well as have room for expansion. Another option is selling milk to a California cheese plant that would process the milk and handle the marketing.

Raymond Coupe, whose family dairy in Galt milks 165 cows, said he is currently negotiating a contract to sell his milk to Milk Movers of America.

"The deal is not complete yet. There's a lot of alignment to be done with the trucking and who is going to take the milk," said Coupe, whose family had shipped milk to Crystal Cream for more than 60 years. "Hilmar Cheese has committed to paying us full-price for six loads a day for six months. We're grateful that they'll do that."

Coupe added that the Milk Movers of America has agreed to purchase the additional seventh and eighth daily loads of milk.

In addition, Coupe said that after the contract ends in December, the milk broker may offer an annual contract for 2009. Bowe was unable confirm or deny the information about a 2009 contract.

Tony Toledo of Galt, a second-generation dairy farmer who has been working in the dairy business since he was 10 years old, has agreed that this deal with the Milk Movers of America is the best option.

"There were some other offers but everyone agrees that this is the best one that will help us the most. I've seen the contract and I think it is going to work for us," said Toledo, who milks 450 to 500 cows. "This will give us more time and hopefully things will get better."

Toledo said he was initially blindsided by the HP Hood decision to cancel his contract. His family had shipped milk to Crystal Cream & Butter since 1970.

Looking at the big picture, the issue facing California's dairy producers, Marsh said, is not being able to find adequate plant capacity for processing the milk.

"All of the co-ops in the state now, excluding Hilmar Cheese which is not a cooperative, have put bases on their producers saying you can only ship us the same amount of milk as you produced last year. The reason for that is there simply is no home for the milk," Marsh said. "California is presently sending a significant amount of milk out of state. As an industry, we've got to solve the issue of siting processing facilities in California. We continue to face the hurdle that we can produce the milk here, but if you can't get anybody to process it, it is extremely costly to move it out of state."

Dairy producers are currently experiencing high milk prices and demand for dairy products worldwide is extraordinary, Marsh said.

"We are seeing emerging markets such as China, India, Indonesia, Mexico and the Middle East, and we're also in a situation where our major international competitors have pretty much dropped out," Marsh said. "The Australians are not able to produce milk to the level that they have historically because they are in the sixth year of a drought and New Zealand recently got hit by similar drought conditions as well."

However, it is a difficult time to be in the dairy business, Marsh said, due to the lack of processing capacity and expensive production costs such as the high surge in feed costs.

In 2007, California's top commodity—milk and cream—had a record year, earning a total revenue of $7.33 billion, according to the California Department of Food and Agriculture.

(Christine Souza is a reporter for Ag Alert. She may be contacted at csouza@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.