The Agriculture Department on Monday proposed to scrap a change made by the 2018 farm bill to the way fluid milk is priced under federal milk marketing orders.
The 332-page proposal would restore a rule that makes the Class 1 milk price the higher of the price of Class 3 (milk sold for cheese) and Class 4 (butter and milk powder) for the month, plus a differential that would vary by location.
The 2018 farm bill changed the Class 1 price to 74 cents above the average of the Class 3 and Class 4 prices.
There also would be a new pricing formula for “extended shelf life” milk.
The farm bill provision had been the result of an agreement between the National Milk Producers Federation and the International Dairy Foods Association. NMPF appealed to USDA to restore the old formula after the change backfired on producers during the COVID-19 pandemic.
The changes to the Class I formula is one of a series of proposed modifications in rules for federal milk marketing orders released by USDA’s Agricultural Marketing Service. The proposed changes must be approved in a producer referendum. By law, USDA had until Monday to release its proposals.
The proposals are the result of an extended USDA hearing process that took place last year and pitted various segments of the industry against each other. Dairy Farmers of America, a major dairy cooperative with 83 processing facilities, withdrew its membership in IDFA over its decision to ask only for changes in make allowances, the deductions for processors' cost of manufacturing Class 3 and 4 products.
USDA is proposing to update make allowances to 25.04 cents a pound for cheese, 22.57 cents for butter and 22.68 cents for nonfat dry milk and 26.53 cents for dry whey.
The existing make allowances, set in 2008, are 20.03 cents for cheese, 17.15 cents for butter, 16.78 cents for nonfat dry milk and 19.91 cents for whey. Both NMPF and IDFA proposed increases, but IDFA wants larger ones.
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Meanwhile under the USDA plan, prices for 500-pound barrel cheddar cheese would be removed from the Dairy Products Mandatory Reporting Program survey and instead rely solely on the price of 40-pound block cheddar cheese to determine the monthly average cheese price.
NMPF President and CEO Gregg Doud, said in a short statement that USDA had adopted much of what his organization had proposed.
“Crafting an effective milk-pricing system for farmers is complex and requires a careful balance. USDA’s plan acknowledges that complexity and, while not matching our proposal in every detail, looks largely in keeping with the comprehensive approach painstakingly determined by the work of dairy farmers and their cooperatives over the past three years," he said.
"We look forward to examining this proposal topic-by-topic, gathering input regarding the various needs of our members nationwide, and adding their insights as this process moves toward a vote of producers.”
Wisconsin-based Edge Dairy Farmer Cooperative, which is not a member of NMPF, said in a press release its "innovative" proposal for pricing extended shift-life (ESL) milk made it into the department's plan.
“We will need a few days to analyze today’s report thoroughly, but what we can say is we appreciate the thorough and dedicated work the AMS team did in curating all the testimony, written responses and market analysis done to get us where we are today,” Edge CEO Tim Trotter said.
IDFA responded to the USDA proposals with a statement from the group's chief economist, Mike Brown: “We are still reviewing USDA’s recommended decision, but our first impression is that there are aspects of the proposal that are responsive to the facts and data presented at the hearing by IDFA and our members which offer a path toward balanced growth across the dairy supply chain.
"We were disappointed that the recommended decision would revert the Class I mover to the ‘higher of’ which will make it nearly impossible for non-ESL fluid milk processors and their customers to continue to use risk management tools in their business relationships.”
