“If you look at the federal order pools back in the 1950s, it was about two-thirds to fluid milk and the other one-third being manufacturing,” University of Wisconsin-Madison’s Mark Stephenson explained during the March 3 Hoard’s Dairyman DairyLivestream. “At that point in time, it made sense to construct federal orders the way they were constructed, and we’ve been evolving them ever since.”

That evolution has aligned with changes in the dairy industry. Today, 60% of milk is used to make cheese. Just one-third of that amount is used for fluid processing.

“It’s a very different market today. We have basically a fluid regulation in federal milk marketing orders in a manufacturing world. We’re seeing some of the stresses and strains of that reality,” he shared. “One of them was played out in full view this past year with the pandemic.”

Specifically, Stephenson detailed the crash of cheese prices in mid-April last year. Those prices went on to hit record levels exceeding $3 per pound. “When you have that much of a benchmark moving milk prices around, it’s certainly going to cause some problems and differences on farms,” he summarized.

A two-tier system is feasible
The discussion on federal orders led to an insightful question from a webcast viewer, “Can dairy go to a two-tier price system — fluid and manufacturing?”

The short answer is yes.

Stephenson reminded listeners that, at one point, some federal orders had as many as eight classes of milk.

“There’s nothing that says Moses had four classes on the tablets and that’s the only thing we can have. We can have two classes, and it perhaps makes some sense,” he said in making a Biblical reference to the most famous Old Testament prophet. “However, I will say that we have to be careful with this, because when we’re pricing this milk, it’s not the price for milk that comes down from the federal orders.”

Rather, federal orders serve as a minimum for milk prices. Reducing class numbers to a two-tier system takes away some of the market’s ability to maneuver.

An ongoing series of events
The next broadcast of DairyLivestream will be on Wednesday, March 24 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.

To comment, email your remarks to intel@hoards.com.
(c) Hoard's Dairyman Intel 2021
March 8, 2021
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