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Referendum of eligible dairy producers passed by two-thirds majority vote in favor of adopting proposed changes to FMMOs.
The U.S. Department of Agriculture’s Agricultural Marketing Service (AMS) released a final rule amending pricing provisions for 11 Federal Milk Marketing Orders (FMMOs). The rule, Milk in the Northeast and Other Marketing Areas; Uniform Pricing Formula Provisions, was published Jan. 17 in the Federal Register.
AMS said separate producer referenda held in each of the 11 FMMOs obtained the necessary two-thirds vote in favor of adoption of the amendments as proposed, clearing the path for the agency to issue this final rule amending all 11 FMMOs in accordance with the Agricultural Marketing Agreement Act of 1937, as amended. Eligible producers were those engaged in the production of milk for sale within the marketing areas of the Northeast, Appalachian, Florida, Southeast, Upper Midwest, Central, Mideast, California, Pacific Northwest, Southwest and Arizona FMMOs during January 2024, the representative period.
This final rule is effective June 1, 2025, except for certain amendatory instruction listed in the rule that will be effective Dec. 1, 2025.
This final rule adopts the amendments detailed in the proposed rule (89 FR 95466) amending the pricing provisions applicable to milk regulated in the Northeast and other marketing areas, as defined by federal regulations, as follows:
Milk composition factors. FMMO milk prices are based on three primary components: protein, other solids and nonfat solids. Skim milk composition factors in the current price formulas codified in the FMMO regulations were adopted in 2000 at: 3.1% protein, 5.9% other solids and 9% nonfat solids. This final rule increases the milk composition factors to 3.3% protein, 6.0% other solids and 9.3% nonfat solids. Actual component tests of skim milk have increased since 2000, with more significant increases beginning in 2016. The amendments will more accurately represent component levels in milk produced. In the final decision, AMS proposed a six-month implementation lag for the amended composition factors, and as such, the amendments will be implemented on Dec. 1, 2025.
Surveyed commodity products. Milk prices under FMMOs are related to wholesale prices for butter, cheese, nonfat dry milk and dry whey. The formulas use USDA-surveyed average wholesale prices to calculate milk component prices (butterfat, protein, nonfat solids and other solids) that are converted to Class III and IV milk prices. The protein value in cheese is a component of the Class III price.
Currently, the prices of commodity cheddar cheese packaged in 40 lb. blocks and 500 lb. barrels are collected weekly by AMS through the Dairy Products Mandatory Reporting Program (DPMRP) survey. A monthly average of those prices is used to represent commodity cheese in the Class III price formula. The butterfat value in commodity salted butter is the driver of the butterfat price used in all classified prices. This final rule eliminates 500 lb. barrels from the DPMRP survey, so DPMRP will rely solely on the 40 lb. block cheddar price to determine the monthly average cheese price used in the formulas. The amendment will provide for more orderly marketing through a survey of only one product and will be implemented on June 1, 2025.
Class III and Class IV formula factors. Make allowances are a factor in the FMMO pricing formulas representing the cost of converting raw milk into butter, cheese, nonfat dry milk (NFDM) and dry whey – the four manufactured dairy products surveyed by USDA. Make allowances were last updated in 2008. This final rule updates the make allowances in the FMMO Class III and IV formulas as follows: $0.2519 for cheese, $0.2272 for butter, $0.2393 for NFDM and $0.2668 for dry whey. This rule also updates the butterfat recovery factor in the Class III formula to 91%. The amendments will update the formula factors to be more representative of current costs and butterfat recovery observed in dairy product manufacturing and will be implemented on June 1, 2025.
Base Class I skim milk price (Class I mover). The Class I mover is the base price for the skim milk portion of raw milk used in the production of Class I products. The 2018 Farm Bill amended the Class I skim milk price mover from the “higher of” Class III or Class IV skim prices to a simple average of the two classes plus $0.74, referred to as the “average of” mover. This final rule returns the base Class I skim milk price calculation to the higher-of Class III or Class IV skim prices.
This final rule also adopts a rolling monthly Class I ESL adjustment equating to a Class I price for all ESL products equal to the average-of the Class III and Class IV advance prices, plus a 24-month rolling average adjuster, with a 12-month lag. The monthly Class I ESL adjustment will be calculated as the average of the differences between the higher-of and the average-of calculations for the prior 13 to 36 months. The amendments will provide for more orderly marketing by returning to the higher-of mover, while the Class I ESL adjustment will provide better price equity for ESL products whose marketing characteristics are distinct from other Class I products. These changes will be implemented on June 1, 2025.
Class I and Class II differentials. FMMO Class I prices are calculated as the average of the advanced Class III and Class IV prices, plus $0.74, plus a location-specific differential referred to as a Class I differential. As the value of milk varies by location, Class I differentials have been determined for every county in the continental U.S. Current Class I differential levels were implemented Jan. 1, 2000, with updates to the differentials in the three southeastern orders taking effect May 1, 2008. This final rule retains the $1.60 base differential and adopts modified location-specific Class I differential values. The amendments recognize the evolution of the dairy industry since 2000 and the increased cost of servicing the Class I market given current transportation costs and plant and producer locations. These changes will be implemented on June 1, 2025.
The amendments to the FMMOs are based on the record of several public hearings held in 2023 and 2024 to receive evidence on proposals in the five pricing subject areas submitted by dairy farmers, handlers and other interested parties. During the hearings, AMS received testimony from a total of 165 witnesses. A review of the hearing record and information on the amendments is available on the AMS website.
When preparing its recommended and final decisions, AMS also considered proposed findings submitted in post-hearing briefs, officially noticed documents and comments and exceptions filed in response to the recommended decision. In conjunction with the final decision, AMS conducted a Regulatory Economic Impact Analysis to determine the potential impact the FMMO pricing formula amendments on producer revenue and market-wide pool values.
The National Milk Producers Federation (NMPF), in its response to the final rule, thanked AMS and the producers and cooperative leaders who helped shape the final amendments. The federation advocates public policy issues on behalf of dairy producers and the cooperatives they own.
“Dairy farmers and cooperatives have done what they do best – lead their industry for the benefit of all,” said Gregg Doud, president and chief executive officer of NMPF. “This final plan will provide a firmer footing and fairer milk pricing, which will help the dairy industry thrive for years to come. We appreciate the monumental contributions across government and the dairy industry that made this happen.”
NMPF said it also plans to keep pushing for elements of its own proposal that require congressional authorization, including mandatory dairy manufacturing cost reporting to inform future milk pricing discussions.
Edge Dairy Farmer Cooperative, which serves as a voice in Congress for dairy farmers throughout the Midwest, issued a news release in anticipation of the publication of the final rule. President Heidi Fischer said during a press conference at Dairy Strong, “We are encouraged by this positive outcome that the vitality and importance of Federal Orders remains. And while there is always more to do to keep the orders relevant and purposeful, at this juncture, we are encouraged that the FMMO will continue to provide the market stability needed for both producers and processors.”
Edge CEO Tim Trotter added that there’s still more work to do. “We are glad that AMS recognized the importance of risk management, through the introduction of ESL pricing for beverage milk and lag for implementation of higher skim component tests. More work should be done to improve milk check transparency so dairy farmers know if their milk is pooled or not pooled. We hope all future changes will also be done in a way that does not interfere with other USDA programs that benefit dairy farmers, such as livestock insurance.”
The American Farm Bureau Federation also had mixed reaction in its news release. Farm Bureau president Zippy Duvall said, “We’re grateful that USDA listened to not only our calls but also calls from the broader dairy industry to switch back to the ‘higher of’ Class I milk formula, increase Class I differentials, improve cheese price discovery and update milk composition factors. However, the positive changes that will come as a result of these reforms will not be uniform for dairy farmers across the country and will be greatly offset by large, unjustified increases in make allowances.”
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