U.S. milk pricing system needs update

U.S. milk pricing system needs update

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U.S. milk pricing system needs update

By Darren Turley
Executive Director, Texas Association of Dairymen

The biggest news in the dairy industry today is the ongoing discussion of reforming the Federal Milk Marketing Order (FMMO) program. The COVID shutdown helped reveal a few flaws in the current rules that govern milk market pricing.

For those reading this who aren’t in the dairy industry, the U.S. Department of Agriculture (USDA) oversees the FMMO program which includes 11 milk marketing orders and applies to about 75% of total U.S. milk production. The program establishes provisions under which dairy processors buy fresh milk from an area’s dairy farmers, and also establishes minimum prices paid to farmers, ensures payments to farmers are accurate and timely, and provides market information.

This will be the first time we have seen the FMMO program addressed since 2000. Stop and think about how different our lives are now compared to 2000. Dairy markets also have changed drastically in the past 22 years. Especially in Texas. In 2000, our state was the seventh largest dairy state in the U.S. and had just over 200,000 dairy cows. Today, we’re number four and closing in on Idaho for third place, and Texas dairies are home to almost 650,000 cows. Over the past 22 years, we’ve also seen a number of milk processing plants open and expand in our state. Our export market has grown, and new protein blends of milk powder didn’t even exist in 2000.

As you can see, a review of the FMMO program is overdue.

At its recent meeting in Kansas City, the American Farm Bureau Federation discussed the much-needed reform in many areas of milk pricing. Texas Association of Dairymen Board Member James Hancock, who operates Prairie View Dairy in Muleshoe, represented Texas at the meeting.

The National Milk Producers Federation (NMPF) also has held meetings across the country to discuss possible changes that could benefit today’s dairy farmers. NMPF supports the federal legislation that authorizes the FMMO system and advocates reforms that increase clarity and dairy farmer understanding of milk pricing, as well as ensures an orderly market and fair prices for dairy farmers. In October, NMPF members endorsed a proposal that:

  • Returns to the “higher of” Class I mover.
  • Discontinues including barrel cheese in the protein component price formula.
  • Extends the current 30-day reporting limit to 45 days on forward priced sales on Nonfat Dry Milk and dry whey to capture more exports sales in the USDA product price reporting.
  • Updates milk component factors for protein, other solids and nonfat solids in the Class III and Class IV skim milk price formulas.
  • Develops a process to ensure make-allowances are reviewed more frequently through legislation directing USDA to conduct mandatory plant-cost studies every two years.
  • Updates dairy product manufacturing allowances contained in the USDA milk price formulas.

This is the start to a national discussion of reform, but it seems that these points are acceptable to most states.  Hopefully we will see the unified support push a change in the FMMO to better represent today’s markets.

TAD will continue to monitor the Federal Milk Market Order reform process through its further debates and discussion with the various dairy processors. It is anticipated that a USDA hearing and a potential producer referendum on Federal Milk Marketing Order modernization will be held in 2023.

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