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Dairy pricing needs fixing

Dairy pricing needs fixing

American Dairy Coalition logo

OPINION  On behalf of the American dairy farmers, we want to extend our thanks to the National Milk Producers Federation and the International Dairy Foods Association for their willingness to pursue changes to the Class I price mover. The effort is a commendable response to the disastrous effects of negative producer price differentials, which based on data from U.S. Department of Agriculture’s Agricultural Marketing Service, represented a $2.7 billion shortfall in Federal Milk Marketing Order component pricing revenue-sharing pools.

In 2019 the Federal Milk Marketing Order’s Class I fluid-milk-pricing formula applied a $0.74 per hundredweight differential to the monthly average of the advanced Class III and IV skim prices. That replaced the previous Class I formula, which was calculated based on the higher-of the advanced Class III or IV skim price.

The closing of schools and restaurants early this past year, and the subsequent federal response coinciding with the reopening of restaurants across the country, inflated the Class III and cheese prices. Class III rose significantly but we didn’t see the same impact on Class IV-milk values. Processors with the ability to depool their milk opted out of the order, thus benefiting themselves. Meanwhile dairy farmers shipping to regulated plants faced significant deductions in their milk checks via producer price differentials because of processors who opted out of the pool. That massive volume of depooling decreased dairy-processor costs and increased their bottom lines at the expense of dairy farmers.

Additionally farmers who chose to purchase risk-management tools were unexpectedly unable to utilize them and suffered significant losses. Making matters even worse, the pricing formula pitted farmers against one another due to the unfair inequalities between neighboring producers and across different regions of the United States. That’s an unethical situation where processors are able to choose what to pay dairy farmers. Farmers deserve full transparency from their processors and a seat at the table to negotiate pricing and federal orders going forward.

We respectfully ask the National Milk Producers Federation and the International Dairy Foods Association to allow us a seat at the table for a more-balanced voice of dairy farmers. As we move together to find a solution and fix the current pricing formula, it’s critical that outcomes are fair and equitable to farmers from all regions of the United States. Currently we’re working on solutions that will result in a more impartial and even-handed pricing strategy – one that will address the unfair advantage processors are given over dairy farmers through the depooling process. We’re not opposed to processors making a profit and protecting their risks – except when there are loopholes that have such a devastating impact on farmers through massive milk-check deductions while simultaneously removing our risk-management tools.

We believe a dangerous precedent has been set, and we have concerns with circumventing the Federal Milk Marketing Order hearing process by way of legislation. The current legislative approach lacks transparency for individual farmers and leaves this seemingly secretive milk-pricing decision-making in the hands of legislators and a small number of representative voices. Furthermore the decisions affecting milk pricing should be made by those most impacted by the outcome of the decision-making process, and not by those who stand to benefit from loopholes.

We believe an expedited Federal Milk Market Orders hearing should be requested immediately, along with an immediate solution to address the negative producer price differentials that are being passed onto farmers. The hearing process allows inclusive participation where all farmers can bring their ideas forward and be heard on the record. We look forward to working with the National Milk Producers Federation and the International Dairy Foods Association as well as other industry stakeholders to immediately address those inequalities that are simply unacceptable for dairy farmers across the United State. It’s time for transparency, honesty and collaboration across our entire industry to fix this.

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