June 2, 2022

 

American Dairy Coalition seeks clarification on changes in milk pricing

 

 

The American Dairy Coalition is seeking clarification from the US Department of Agriculture (USDA) on what is required to make changes in milk pricing under the Federal Milk Marketing Orders (FMMO), Capital Press reported.

 

Tom Vilsack, the US Agriculture Secretary, said the dairy sector needs to arrive at a consensus on changes to milk pricing before the USDA will deliberate holding a national hearing about the matter.

 

The American Dairy Coalition asked in a letter to Vilsack whether he wants a consensus on a demand for a hearing or on a detailed proposal.

 

The letter said that there is an industry-wide consensus that the 2018 Farm Bill's Class I pricing change needs to be amended. The coalition stated that there are some differences in how this should be accomplished but because the change was made without a vetted hearing process, dairy farmers agree that 'righting this wrong' is a great place to start in opening an FMMO hearing.

 

The coalition said the problem revolves around the Class I mover, which determines the base price for Class I milk (sold as a beverage) and then adds a location differential. The "higher of" Class III or IV advance prices was changed to the "average of" those two prices plus 74 cents per hundredweight in 2019.

 

The change was made to help fluid milk processors manage their risk better. However, it had unintended consequences when government purchases of cheese for pandemic-related food boxes for the poor skyrocketed Class III prices.

 

As a result, there was a significant price difference between Class III and IV, lowering the "average of" below what the previous "higher of" would have been.

 

In addition, to avoid paying the high Class III prices, processors pulled milk from federal order pools. Negative producer price differentials, or PPDs, resulted as the value of those pools declined. The PPD is the price differential between Class III milk and the other three milk classes.

 

"The switch from a 'higher of' to a 'average-plus' formula for Class I milk resulted in a US$3 billion inequitable loss to dairy farmers." The US$750 million cumulative devaluation of the Class I milk price (compared to the previous Class I mover) since the new formula was implemented in May 2019 is included in this estimate, according to the coalition.

 

The coalition said that the bill authorising the change states that it can be amended after two years through a USDA hearing process.

 

They said when it came to making federal milk pricing changes, their voice was pre-empted in the last farm bill, and their dairy farmer members paid the price.

 

As a result, the group believes it is necessary to revert to the previous Class I mover formula for the time being, while the industry works to reach a consensus on what milk pricing should look like in the future.

 

The group also discussed processor "allowances," transparent milk pricing for farmers, and the formation of a USDA working group with farmer representation to review new pricing solutions.

 

-      Capital Press