Dairy processors would pay farmers more for fresh milk that is destined for table consumption — perhaps totaling $800 million a year — under a set of recommendations from the Agriculture Department on Monday. The “recommended decision” to update the milk marketing system needs USDA final approval after a comment period and must win in a referendum by milk producers to take effect.
The Agricultural Marketing Service proposed amendments in five areas of the Federal Milk Marketing Order system but the biggest issue was how to set the price for so-called Class I fluid milk. Advocates wanted to overturn the formula established in the 2018 farm law and return to the previous calculation. The AMS amendments would do that.
“Our dairy farmers deserve to be fairly compensated for their products and for too long they have felt the economic ramifications of the 2018 farm bill pricing change,” said Sen Kirsten Gillibrand, New York state Democrat. “I look forward to working with USDA to finalize these amendments to support our New York dairy farmers.”
Under the AMS recommendations, the minimum price for Class I milk would be based on the higher of the Class III or Class IV price plus the differential for Class I production. The marketing system has four classes of milk. Class I is fluid milk. Class II is used in making soft products such as yogurt and ice cream. Class III is milk for making hard cheeses. Class IV is milk used in making butter and dry milk.
The National Milk Producers Federation, speaking for dairy producers and cooperatives, said “much of what we proposed…is reflected in USDA’s recommended Federal Milk Marketing Order modernization plan.”
USDA analysts said if the “higher of” formula had been in use from 2019-23, farmers would have received $4 billion, or 10 percent, more for fluid milk than they actually were paid. When all the amendments are weighed, the total pool value of milk over the five years would have been $2 billion, or 1.6 percent, higher than it was. The pool is the combined value of the four classes of milk.
“Thus, it can be concluded that if future data is similar to the historic data analyzed, the recommended amendments are likely to contribute to increases on average in producer revenue and pool values, while incorporating more current costs faced by producers and processors in marketing milk and, thus, contribute to orderly marketing conditions,” said the AMS economic impact analysis.
Besides the price of fluid milk, the AMS amendments would increase the amount of protein in Class III and IV milk; remove 500-pound barrel cheese prices from the formula for the monthly average cheese price; increase the estimated costs to processors for making cheese, butter, nonfat dry milk, and dry whey; and introduce location-specific Class I differentials to reflect current marketing conditions while retaining the base differential of $1.60 per 100 pounds of milk.
The marketing order system dates from 1937. There are 11 regions with marketing orders that cover most but not all of the 50 states and three-quarters of U.S. milk production. Marketing orders regulate fluid milk processors; manufacturing processors, who make products such as yogurt, cheese, and butter, participate in marketing orders when it is economically advantageous.
The 2018 farm law said the Class I milk price would be calculated by averaging the Class III and IV prices and adding 74 cents per 100 pounds of milk.
A pre-publication draft of the USDA’s recommendations was available here.
To read the USDA’s economic impact analysis of its recommendations, click here.