The Price Is Wrong

May 21, 2021

Let’s just say milk pricing is about as simple as a graduate-level statistics course…

So it was no surprise last month when the National Milk Producers Federation (NMPF) asked the USDA for an emergency hearing regarding milk pricing structure. But – real talk – not all dairy farmers have a “glass half full” view of the proposal.

Refresher: Milk sales are regulated by Federal Milk Marketing Orders (FMMOs) that set milk prices based on the class (intended use) of the milk.

Class I milk prices (the jug in your fridge) are calculated based on the average of cheese (Class III) and powder milk (Class IV), with an added premium.

Enter the ‘rona: COVID-19 messed with the milk market big time in 2020. As cheese prices influenced fluid prices, dairy farmers took the ultimate hit. The NMPF’s proposal seeks to change price structuring…and make up for some 2020 losses.

But some producers are saying, “hold your holsteins.”

In a letter sent to Ag Secretary Tom Vilsack, five Midwestern dairy groups put forth their own proposal dubbed Class III Plus.

The Class III Plus crew says that their proposal provides future stability, allows for better risk management, and does not increase long-term consumer prices.

Soundbite: “[The NMPF proposal] attempts to claw back lost revenue in the short term and leaves larger problems unsolved. Our organizations prefer sensible changes that will last for decades,” noted Amy Penterman, president of the Dairy Business Association.

Bottom line: The groups aren’t pushing for an emergency FMMO hearing. But if it happens, they say the discussion needs to be broader in scope and “tackle more than just Class I pricing.”