California milk shortage prompts co-op to pay price premium |

Brutal temperatures in central California this year have taken a bigger-than-usual toll on cow comfort and milk production.

That is leading at least one major dairy co-op thirsty for milk to pay premiums of $1.50 per hundredweight over recent base production through mid-September, said Sarina Sharp, market analyst for the Daily Dairy Report.

Declining to reveal the name of the co-op offering premiums, Sharp said it is encouraging its members to increase milk production, as it would like to source its milk from members.

Premiums will be paid on up to 1.5 million pounds of milk per day above producers’ June 26 through July 10 production average, she said.

Seven counties in central California, led by Tulare County, are in the top 10 milk-producing counties in the nation. Conditions there — cows have been hit hard by the heat — have a big impact on regional and national milk supply and prices, she said.

Daytime temperatures well above 100 degrees for a full week and the lack of cooler nighttime temperatures to mitigate the heat’s impact on cow stress have led to lower production in central California, she said.

That has created milk-production shortages severe enough to prompt the premiums, she said.

Scorching temperatures in central California ranged from 105 degrees on June 28 to 110 degrees on July 4, with temperatures hitting 96 degrees to 101 degrees for 17 days in July, according to AccuWeather.

In addition to decreased milk production, demand for dairy products — particularly milk powder for export — is strong due to a drought in New Zealand this spring that hit its milk production hard. California is well poised to fill that temporary export vacuum, she said.

“Even with production shortfalls, there is no shortage of milk in California,” she said.

Milk supplies are a little tight seasonally, but Dairy Institute of California members are not reporting shortages, said Rachel Kaldor, executive director of the Institute, which represent processors.

Some shortfalls are expected, given the heat and high feed costs last fall that put a crunch on milk production. Some processing plants aren’t running at full capacity, but she’s not hearing of any manufacturing problems at this point or that co-ops are not able to supply enough milk, she said.

The situation seems to be that one co-op is trying to buy more milk, and it appears to be Land O’Lakes that has the shortages, she said.

Last year’s exceptional spring flush resulted in a lot of milk, and Land O’Lakes released 17 of its supplying dairies. This summer’s extreme heat definitely has had an impact on production, but Land O’Lakes doesn’t have the reserve it might have otherwise had, she said.

Now in a time of tight supplies, the co-op has little to draw on and can’t respond as quickly, she said.

“That’s what it looks like to us,” she said.

Land O’Lakes supplied Capital Press with its 2012 annual report but the co-op does not comment on its business interactions with members, said Rebecca Lentz with Land O’Lakes corporate communications.

But a credible source familiar with Land O’Lakes has verified the co-op is offering the temporary premiums, said Michael Marsh, CEO of Western United Dairymen.

The co-op’s production shortfall is consistent with reports from Dairy Farmers of America and California Dairies Inc. of lower production (but not shortfalls) in central California, he said.

But Land O’Lakes’ retiring of farms last year is not the reason for the premiums, and the co-op was meeting its need with that adjustment until the heat hit, according to Marsh’s source.

The co-op is trying to meet the demand of global customers “screaming for product,” Marsh said.