Dairy Producers OK Changes to Milk Marketing Orders

Dairy producers have approved a series of modifications to federal milk marketing orders, including reversing a change to milk pricing that was made in the 2018 farm bill.

USDA’s Agricultural Marketing Service (AMS) finalized the changes last fall and submitted them to a referendum in December in all 11 marketing order regions, stretching from the Northeast and Florida to California and the Pacific Northwest. Producers in all of the orders approved the modifications by the necessary two-thirds majority, the agency said in the final rule posted last week.

Under the final order, which takes effect June 1 for most elements, USDA is restoring a rule that makes the Class 1 (drinking) milk price the higher than the price of Class 3 (milk sold for cheese) and Class 4 (butter and milk powder) each month, plus a differential that varies by location. The location differentials also were updated. 

The 2018 farm bill had fixed the Class 1 price at 74 cents a hundredweight above the average of the Class 3 and Class 4 prices.

Dana Coale, Deputy Administrator of the AMS Dairy Program, said at a conference sponsored by Wisconsin-based Edge Dairy Farmer Cooperative that the farm bill formula resulted in steep reductions in producer income as a result of market disruptions during the COVID-19 pandemic.

The new order “gives certainty as to what lies ahead,” Coale said at the Green Bay, Wisconsin, meeting. “You know what’s coming.”

The new regulations include a separate new pricing formula for milk with an extended shelf life (ESL), which includes products such as ultra-filtered Fairlife milk. The new formula, like the 2018 farm bill provision, is supposed to remove some volatility in pricing for a product that is purchased and marketed over a longer period than conventional fluid milk. ESL products represent about 8% to 10% of the fluid milk market.

The final order also increases processors’ “make allowances,” which are deductions for processors' cost of manufacturing Class 3 and 4 products. 

The revised make allowances represented the “middle of the road between the producers and the processors,” said Coale. 

The make allowances are being increased to 25.19 cents a pound for cheese, 22.72 cents for butter, 23.93 cents for nonfat dry milk and 26.68 cents for dry whey. The existing make allowances, set in 2008, have been 20.03 cents for cheese, 17.15 cents for butter, 16.78 cents for nonfat dry milk and 19.91 cents for whey.

“U.S. producers can’t live without processors. Processors can’t live without producers. ... and there’s a balance there that has to be maintained. The division of wealth across this system wasn’t working right,” Coale said.

Michael Dykes, President and CEO of the International Dairy Foods Association (IDFA), said in a statement that the order made “much-needed changes” to the make allowances.

“While the USDA process did not address all issues within the supply chain, particularly for Class I and organic milk processors, IDFA is optimistic that this process has laid the groundwork for a unified and forward-looking dairy industry and we are grateful to our members who provided testimony and engaged in this process over the past 2-plus years.”

The National Milk Producers Federation (NMPF), which led the push for the revisions in the pricing formula, welcomed the final rule. 

“Dairy farmers and cooperatives have done what they do best – lead their industry for the benefit of all,” said NMPF President and CEO Gregg Doud. “This final plan will provide a firmer footing and fairer milk pricing, which will help the dairy industry thrive for years to come. We appreciate the monumental contributions across government and the dairy industry that made this happen. The industry, and all dairy consumers, owe all of you a debt of gratitude.”

EDITOR’S TAKE:

This is a monumental feat for the entire dairy industry. Simply to reach an agreement on the changes they desired is a major accomplishment, but to get the necessary 2/3 votes needed for approval is monumental. The changes should stabilize the income of dairy farmers and help them be able to better plan for their future. After suffering from some pretty serious volatility in recent years, more predictability will be well received. Dairy farmers in your area use a lot of trucks and their family members use those nice SUV’s. Be sure to use all the tools provided by the Certified Ag Group – AgTruckTrader.com® to advertise your inventory; AgPack® for up to $40,000 in exclusive rebates and discounts on products dairy farmers use; CAD Protect for extra warranty protection; and CADFI to fit those payments to their specific cash flow requirements!