“Mandatory pooling would not change the fact that you had a negative PPD,” said Andy Novakovic, Cornell University economist, in unpacking the correlation between plant pooling and producer price differentials (PPDs).
“What it would do is keep that high Class III price in the pool. So, it would benefit the blend price . . . but you’d still have negative PPDs. The money would stay in the pool instead of being pulled out by whoever it was that depooled, usually a co-op,” he said on the November 18 Hoard’s Dairyman DairyLivestream sponsored by Diamond V.
When an organization does depool, the farms supplying milk to that group may benefit in some cases. The revenue goes somewhere, reminded Cornell University’s Chris Wolf. “But that means there is less money going into the pool, so everybody that’s still in the pool is much worse off,” he said.
Each federal order has different regulations for moving in and out of a pool. “In a place like California, as a good example, I think you just have to blink, and you can be in or out of the [pool]. It doesn’t take much; it’s a very low hurdle there. But then again, there’s a lot of milk relative to the amount that’s needed to service Class I markets,” described Mark Stephenson of the University of Wisconsin-Madison. “The same is true in the Upper Midwest; we have a relatively low hurdle for getting in and out. If you take a look at something like the Northeast, the hurdle’s much higher there.”
There aren’t really commitments to staying in a pool for a certain period of time, but processors do have a fairly short window of opportunity to decide to be in the pool, Stephenson added. “If you get out of the pool tomorrow, which you can do, you may not be able to get back into the pool for eight or nine months, and you may lose the opportunity when it would be advantageous for you. So, people are weighing those costs,” he said.
An ongoing series of events
DairyLivestream will air twice each month for the remainder of this year. The next broadcast, “What we want and what we might get from Washington,” will be on Wednesday, December 2 at 11 a.m. CST. Each episode is designed for panelists to answer over 30 minutes of audience questions. If you haven’t joined a DairyLivestream broadcast yet, register here. Registering once registers you for all future events.