The witness also testified about the class I fmMO national price area. The witness testified that the reform of the ordinances led to the adoption of a national price area that assigned a value to milk for each county in the United States, based on the supply and demand for milk in those places. The witness was of the view that, since California was included in the analysis of the USDA ordinance reform to deduct price area, it would be appropriate to adopt price area in a California OMFM. The witness noted that the price area identifies five price zones that cover California, ranging from $1.60 to $2.10 per tonne. The witness explained that in the FMMO system, the Class I differential is added to the higher Class III or Class IV price to determine the Class I price for a distribution facility at its location. The witness went on to state that since Class I processors compete with Class III and IV producers for a supply of milk, Class I prices are linked to basic prices in the AMMF system, and this concept should also apply to a California AMMF. According to the producer`s witness, CPHA members hold both an exempt quota and a regular quota, but most of the milk produced by CPHA members is reported as excessive basic production. Using data from the 2015 CDFA, the producers` witness calculated that «Option 70» producer-manipulator milk accounts for about 0.6% of California`s total production. The witness estimated that the exempt quota represents 17.4 percent of the output of Option 70 producer-traders and 4.6 percent of all Class 1 sales in California.
The witness stated that all milk produced and sold by CPHA members, including quantities covered by the exempt quota, will be reported to the CSO pool on a market-wide basis. (2) Final Payment. In the case of milk received during the month, the payment shall be made in such a way that it is paid by each producer by 19 September at the latest. Received the day after the end of the month (except as provided for in § 1000.90) in an amount at least equal to the sum: Some Class I milk processors engage in mutual coverage by using Chicago Mercantile Exchange (CME) Class III and IV futures contracts in an attempt to reduce the risk of price fluctuations that may occur in liquid milk.37 Some analysts believe that prices FMMO`s Advanced Class I and the Class I Formula of Class III or Class IV «Superior» Skimmed Milk Price Factors impact the ability of processors to manage liquid milk price risk (see «Class I and Class II»). Analysts believe that advanced pricing factors contribute to significant base risk (spot price minus futures) when Class III or Class IV futures are used to hedge against risks to Class I milk.38 The view is that the benefits of cross-hedging are affected because the Tier I price is set approximately two weeks before settlement. CME of Category III and Class IV contracts. During this two-week break, there could be significant changes in the cheese or butter and powder markets, changing Class III and IV settlement prices. This would undermine the effectiveness of this risk management technique. In addition, the determination of the Class I or «higher» Class III or Class IV mover carries the risk that Category I prices may not correspond well to Class III or Class IV futures. Essentially, this decision suggests that California`s quota program could continue to operate in essentially the same way it currently does. The record shows that California`s quota program already evaluates California producers to pay quota values to quota holders.
While producers may not consider this to be a detailed deduction on their milk cheques, their base price is lower than usual. This is the result of deriving the quota value from the pool before calculating the base price. Another witness from the co-op testified about the value of the dog handler`s milk and related supplies. The witness suggested that traders regulated by a California FMMO pay prices classified according to the components of the raw milk they receive (also known as «multi-component prices»): butterfat, protein and other solids. Under Proposal 1, according to the witness, regulated handlers would pay for milk on the following: Companies recognized as producer-traders under the CSO may be exempted from bundling some or all of the milk […].