The collective dairy industry leapt into action after USDA Secretary Tom Vilsack shared he was open to a proposal to modernize Federal Milk Marketing Orders. In the ensuing 11 months, hundreds of meetings have taken place to fulfill the secretary’s request to gain consensus. While thoughtful concepts have come forth, the topic of pools has been largely left out of potential areas for repair. We think that position needs to be reconsidered.
PPDs had largely become a nasty four-letter word in dairy farmers’ lexicon when negative producer price differentials (PPDs) exploded onto the scene as COVID-19 gripped the globe. While those negative PPDs certainly looked ugly on milk checks, many thought leaders also shared that short-term solutions may be worse than the situation itself. Alas, as Class III prices finally came into line with Class IV prices, milk began to reenter pools, and negative PPDs faded away from milk checks.
As of late, déjà vu has occurred as Class IV butter-powder prices have leapfrogged Class III prices and depooling is happening once again. However, it’s scantily noticeable in the Northeast order as it has some of the tightest pooling rules. Even though the spread between Class III and Class IV widened, most processors opted to remain in the Northeast pool because, if they pulled milk, those businesses could not rejoin the pool and reap money until 12 months later. As a result, the Northeast order posted record PPDs this August.
Contrast that situation with California, another federal order with a multiple component pricing system where it’s almost effortless to pull milk out of a pool. Hence, pooled butterfat plunged from 50 million pounds to under 10 million pounds when Class IV prices began to dominate the landscape. The same took place for pooled nonfat solids that slid from a 130-million pound midpoint to under 10 million pounds. That action reduced the pool’s value by some $300 million. Had that milk remained in the pool, it could have added an estimated $1.80 per cwt. in late summer, estimated National All-Jersey staffers.
When the tally is completed, the Northeast order had PPDs of $5.32 and $5, respectively, for August and September. California notched $2.28 and $1.28.
Should pool provisions be tightened? Most processors contend that depooling provides a safety valve to prevent financial losses during unprecedented market swings. While we can agree with that premise, we also contend the pool provision deserves an equal review if updated make allowances enter the final federal order equation.