Federal milk marketing order proposal gets mixed reviews by dairy industry stakeholders

For years, milk producers, advocacy groups, and other dairy stakeholders have been sounding the alarm that it was time to amend the uniform pricing formulas across all 11 federal milk marketing orders (FMMOs). The federal milk marketing order determines the prices farmers get for their milk.

Last week's decision by USDA's Ag Marketing Service (AMS) marks a critical milestone in the process which entailed the examination of hundreds of hours of testimony during 49 days of a record-long federal order hearing in Carmel, Indiana, which resulted in reform proposals released this week.

While many industry stakeholders say they have reasons to be heartened by the improvements USDA has proposed, some feel the federal agency has missed the target, and that proposed changes may negatively impact an industry already hurting from inflation, low milk and commodity prices along with challenging weather conditions.

The Recommended Decision puts forth a package of amendments to update formulas and factors based on the evidentiary record of the proceeding. Here is the USDA's proposed amendments to five categories of milk pricing:

• 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 Products Mandatory Reporting Program (DPMRP) 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; Nonfat Dry Milk (NFDM): $0.2268; and Dry Whey: $0.2653. This decision also proposes updating the butterfat recovery factor to 91%.
• Base Class I Skim Milk Price: Update the formula as follows: 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 Class I extended shelf life (ESL) adjustment equating to a Class I price for all ESL products equal to the average-of mover, plus a 24-month rolling average adjuster with a 12-month lag.
• Class I and Class II differentials: Keep the $1.60 base differential and adopt modified location specific Class I differential values.

In conjunction with this proposed decision, the AMS conducted a Regulatory Economic Impact Analysis to determine the potential impact of amending FMMO pricing formulas on producer revenue and market-wide pool values.

AMS used a static analysis incorporating actual data reported from January 2019 to December 2023 to determine the estimated price impacts of the package of amendments included in this Recommended Decision.

Industry groups disappointed with some changes

Roger Cryan, chief economist with the American Farm Bureau (AFB), says the changes have some positives.

"(The proposal) increases the value returned to farmers for bottling milk through increases in the location values and some formula adjustments, but most importantly, it restores the higher of the cheese or butter powder values in the bottling milk price instead of the average plus price formula that was used since 2019," Cryan said during a podcast, adding that there's also some not-so-good news.

"The biggest issue is there's substantial reductions in all the class prices to allow for higher processing costs, and the problem with that is that we don't really have good data to demonstrate higher processing costs."

AFB president Zippy Duvall believes some changes will benefit processors without regard for producers at a time when dairy farmers are struggling and many have gone out of business.

"USDA missed opportunities to improve and update price formulas," Duvall said. “We also strongly believe make allowances should not be changed without a mandatory, audited survey of processors’ costs. Our dairy farmers deserve fairness in their milk checks and transparency in the formula, but the milk marketing order system can’t deliver that unless make allowances are based on accurate and unbiased data."

Gregg Doud, president and CEO of the National Milk Producers Federation says the recommendation incorporates many of the group's improvements that it advocated throughout the process.

"Not every detail is exactly as we would have had it — we always knew that would be the case," he said. "Agreement was nearly universal that make allowances, which hadn’t been revised since 2000, needed to change. The next step now will be seeking better plant-cost data through mandatory surveys via legislation, a step that’s been included in every significant congressional farm bill plan that’s been proposed."

Many industry stakeholders will be pouring over the 332-page document to determine how various facets of the USDA plan will impact dairy farmers and cooperatives.

“This is a complex issue, and we will need to dive into the full report in further detail, but from what we have seen so far, USDA has acknowledged what dairy farmers, cooperatives and other stakeholders have been asking them to address, said Sarah Sarbacker, FarmFirst Director of Communications and Marketing. 

Once last week’s proposal is officially published in the Federal Register, stakeholders will have 60 days to submit comments to USDA.

Cryan says USDA is expected to publish a rule in mid-November that will be voted on by producers and co-ops in early 2025.

"In the meantime, farmers can call their members of Congress to get a new farm bill as soon as possible, because every version of the Farm Bill that we've seen includes an audited, mandatory survey of processors’ costs, and that data could help us get these make-allowances straight, and hopefully get some of that money back to farmers," he said.