A recent analysis of some of the proposed changes to the Federal Milk Marketing Order (FMMO) system was conducted to quantitatively assess what these changes would mean to U.S. milk prices. At the time it was conducted, the analysis assumed the FMMO changes would begin in 2023, but with the FMMO hearing still ongoing, any final changes will not occur until sometime in 2024.

The following scenarios were run based on proposed FMMO changes by the National Milk Producers Federation:

  1. Increase the make allowances in the component price formulas for butter to $0.21 per pound, for nonfat dry milk to $0.21 per pound, for cheese to $0.24 per pound, and for dry whey to $0.23 per pound;
  2. Discontinue the use of barrel cheese in the protein component price formula;
  3. Return to the "higher-of" Class I skim milk price mover;
  4. Update the milk component factors for protein, other solids, and nonfat solids in the Class III and Class IV skim milk price formulas;
  5. Update the Class I differential pricing surface throughout the United States, and
  6. All five options listed above together.

Minor effects

The table lists the changes in U.S. All-Milk prices from each of the five alternatives and the combined effect. U.S. All-Milk prices are $0.09 per hundredweight higher in the first year of the analysis relative to the baseline but moderate as milk production grows relative to the baseline.

Lower U.S. All-Milk prices under the higher make allowances for dairy products result from lower Class III and Class IV milk prices. In contrast, the slightly higher U.S. All-Milk prices result from returning to the “higher of” calculation for the Class I mover price.

The results show that there are only small effects in producer milk prices given the changes in federal order formulas assumed relative to current federal order provisions. In some cases, changes offset one another.

The exact path of the dairy industry in the next several years could lead to larger or smaller impacts of these federal order changes than reported here. This analysis is not intended to determine what policy changes should occur but only to show the quantitative impacts of the proposed changes.

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(c) Hoard's Dairyman Intel 2023
December 21, 2023
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