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 finalized the changes last fall and submitted them to a referendum in December in all 11 marketing orders, 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 Thursday.
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 of the price of Class 3 (milk sold for cheese) and Class 4 (butter and milk powder) for the 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 on Thursday 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 you 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, 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, 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.”
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