USDA announced last Thursday that the final rule amending Federal Milk Marketing Order (FMMO) pricing formulas passed the producer vote and will be implemented in all 11 federal orders.
The changes are:
- Returning the base Class I skim milk price formula to the higher of the advance Class III and Class IV prices instead of using the average of the two. For Class I products with a shelf life of at least 65 days, an adjustment equal to the average of mover plus a 24-month rolling average adjuster with a 12-month lag was adopted.
- Updating the Class III and Class IV make allowances for cheese (up to $0.2519), dry whey ($0.2668), butter ($0.2272), and nonfat dry milk ($0.2393), plus moving the butterfat recovery factor to 91%.
- Updating Class I differentials with location-specific values.
- Removing 500-pound Cheddar barrel prices from the Dairy Product Mandatory Reporting Program survey.
- Updating skim milk composition factors to 3.3% protein, 6% other solids, and 9.3% nonfat solids to reflect the industry’s higher solids production.
The first four changes will take effect June 1, 2025. To minimize complicating risk management options, the skim milk composition factor changes will not be implemented until December 1.
How did we get here?
The industry’s system for pricing milk had not been updated since 2008, and in August 2023, USDA’s Agricultural Marketing Service (AMS) began the process of making changes with a public hearing process that lasted for 49 days. Testimony and evidence were received on 21 proposals.
AMS’s recommended decision was published last July and was open to public comment for 60 days. A total of 128 comments were received and analyzed before the final decision was released on November 12. Dairy farmers, or their cooperatives, then voted on the advised changes. Since the decision process indicated that AMS had determined that federal orders could not operate as is, the vote was between accepting the final decision or disbanding the order.
The fact that every order accepted the changes means that two-thirds of farmers or farmers representing two-thirds of the milk voted “yes.” Ballots not returned are not accounted for in determining that threshold.
Industry reactions
The National Milk Producers Federation, which contributed significantly to the hearing process and saw a number of its proposals take shape in USDA’s decisions, thanked its members for the work put in to modernize the FMMO system.
“This final plan will provide a firmer footing and fairer milk pricing, which will help the dairy industry thrive for years to come,” said president and CEO Gregg Doud.
Michael Dykes, D.V.M., president and CEO of the International Dairy Foods Association, commented that the reforms include important updates, including those to make allowances. However, he noted that the process did not address all issues with the supply chain, especially for Class I and organic processors. Organic Valley, the country’s largest organic co-op, also expressed concern over further fluid regulations.
Regardless, the process laid the groundwork for industry groups and USDA to work together in future hearings to keep dairy moving forward. More than two years of industry collaboration and ideation will soon be put to the test of the market.
