This week, USDA issued a draft of its recommended changes for pricing formulas in the federal milk marketing orders (FMMOs). It is anticipated the Recommended Decision will be published on the Federal Register in the near future.
This release is a critical next step in revamping the FMMO system. Once USDA’s recommendations are officially posted, there will be a 60-day comment period for people and organizations to offer feedback. USDA will review that feedback and then publish a final rule, which would be voted on late this year or early next year.
The draft included five notable updates to the pricing formulas. These were summarized by USDA as follows:
- Milk composition factors: Update the factors to 3.3% true protein, 6% other solids, and 9.3% nonfat solids.
- Surveyed commodity products: Remove 500-pound barrel Cheddar cheese prices from the Dairy Product Mandatory Reporting Program survey and rely solely on the 40-pound block Cheddar cheese price to determine the monthly average cheese price used in the formulas.
- Class III and Class IV formula factors: Update the manufacturing allowances to cheese, $0.2504; butter, $0.2257; non-fat dry milk, $0.2268; and dry whey, $0.2653. The Recommended Decision also proposes updating the butterfat recovery factor to 91%.
- Base Class I skim milk price: The base Class I skim milk price would be the higher of the advanced Class III or Class IV skim milk prices for the month. In addition, adopt a rolling monthly Class I extended shelf life (ESL) adjustment that would provide for better price equity for ESL products whose marketing characteristics are distinct from other Class I products.
- Class I differentials: Update the Class I differential values to reflect the increased cost of servicing the Class I market. The county-specific Class I differentials are specified in the decision.
Dairy organizations have already begun to dig into the 332-page document to evaluate the pros and cons for producers. Thus far, initial responses from leaders of producer-focused groups have been positive overall.
For example, many in the industry have been pushing for a return to the “higher of” Class I mover, as dairy farmers have lost more than $1 billion in revenue since that was changed five years ago. USDA’s recommendation is to revert to using the higher of the Class III or Class IV skim milk price to calculate the base Class I price. Recognizing the processors’ proposal for a different formula, USDA’s draft decision includes an accommodation for extended shelf-life milk.
“USDA’s solution is, frankly, as innovative as it is fair — a classic case of two sides not getting all that everyone wanted, but everyone getting what they most needed,” wrote Gregg Doud, president and CEO of the National Milk Producers Federation, in a press release.
The recommended decision and other documents can be found on USDA’s website.
Again, once the Recommended Decision is published, the 60-day comment period will be open to the public. Details on how to make a comment can also be found on that website.
