Things are changing in California, where around one-fifth of the milk in the U.S. is produced. Starting Nov. 1, the state's independent milk marketing order will cease, giving over to the country's newest Federal Milk Marketing Order. In the second part of this month's two-part conversation, Ted, T3, Anna and industry expert Mike McCully discuss the changes and predict whether the implementation of a Federal Order in California will have the affect dairy farmers have been hoping for.

Anna: Welcome to The Milk Check, a podcast from T.C. Jacoby & Company, where we share market insights and analysis with dairy farmers in mind. Welcome back to Part 2 of our October 1 discussion with Mike McCully. In Part I, we discussed the new trade agreement between the U.S., Canada and Mexico. Today, in this Part 2, we discuss the new California Milk Marketing Order.

Ted: Mike, Anna printed off a copy of the order here last week, and I took a quick look at it. And you know, in my layman's view, I don't see a hell of a lot of difference between the California order and the other orders. We use Richie McKenna here as a consultant on Federal Order issues, and I asked Richie to see if anything jumped out on the pooling provisions and unit pooling and so on. Nothing jumped out to me. You know, we've always worked very closely with the MAs, and we've had a nice relationship with the MAs representing smaller and independent factors in the order. We know that the big boys get, sometimes, a little overly aggressive and manage to aggravate the federal order officials. So our relationship has been quite good in that area.

So a couple of things I think will determine whether how the Federal Order in California plays out. The first thing is who are the handlers, and how is it structured for pooling purposes? You know, there's still enough handlers in the Midwest, for example, to be able to cobble together a unit to keep little guys pooled. Even though the big boys sometimes work diligently to try to thwart that effort, we still do it. Do it in California, I don't really have a good sense of who the Class I handlers are, who the pool distributing plants would be in order to know whether or not there might be the ability to handle unit pooling for people of an independent nature there, of a non-cooperative nature or a proprietary nature is the better way to say it.

What's your view of how that looks from that perspective? If you're an independent manufacturer of cheese, for example, and you want to maintain your own milk supply, you know, and of course, minimum price under the order provisions do apply. How is that gonna work out?

Mike: I think there's...first, the order language is very similar to other orders. And the reason is...MAs have actually told me that a lot of that...not all of it was basically copied over from other orders. The language is very, very similar on those things. And to my knowledge also, I've been through it a number of times with the MAs in seminars and so forth, I don't really think there's anything that would jump out that would be different. Really, the main issue is what you've already brought up is around pooling. And when I went through the Federal Order hearing process, the co-ops and the farmers pushed for mandatory pooling like it is today in the CDFA system and it has been forever, really, in the CDFA system. However, as you know, the market in California is very different than other orders in the U.S. that would have mandatory pooling. And it looks a lot more like the upper Midwest where you've got a high percentage of milk that goes into manufacturing. Eighty-plus percent of the milk in California is Class III or Class IV under Federal Order.

So in that case, you'll see the high manufacturing of milk utilization. You're gonna have more liberal pooling to be pooling tools,