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USDA released it’s final decision on modernizing the Federal Milk Marketing Orders (FMMO) earlier this week. This decision comes after a nearly 18-month process of filings, petitions, and hearings over several components of the milk pricing formulas that govern dairy marketing in the US. The first update in over 25 years, this proposal from USDA will now be voted on by the farmers (or their co-ops) in a referendum to take place between now and the end of the year. USDA AMS will mail out ballots to eligible independent producers and qualified cooperative associations, and all ballots must be postmarked by December 31 and received by January 15. If approved by a super majority of the nation’s dairy farmers or milk supply, then the changes would go into effect in 2025.
What changed between the proposed rule in July and the final rule in November?
The proposed decision in July covered make allowance increases, a return to the higher-of class I mover with a separate mover for ESL milk, updated class I differentials, updated skim milk composition factors, and removing barrel cheese from the Class I formula. We’ve covered those changes in detail and you can read a refresher from American Farm Bureau’s Market Intel series HERE.
This final decision has some minor changes based on the feedback and comments submitted by dairy farmers, co-ops, and processors. First, USDA made some adjustments to the county-level Class I differentials. A total of eight counties in Ohio and West Virginia received a decrease of $0.20/cwt over the proposed Class I differential in July. Another seven counties in New York, New Jersey, and Ohio say a decrease of $0.10/cwt over the July proposal. On the other hand, twenty-two counties in New Mexico, New York, Minnesota, and ND saw their differential increased by $0.10/cwt over the July proposal.
All but a couple of counties in the US saw some increase to the Class I differentials. The average differential increase nationwide was $1.38 while the Southeast saw increases as large as $2.40 in some counties in North Carolina, Kentucky, and Virginia and as small as $1.00 in some Florida counties.
Another key change between the proposed and final decision is a reduction in the delayed implementation of the revised skim milk composition factors. Dairy groups, GMP included, expressed concern that certain changes to the FMMO that would negatively impact producer pay prices (i.e. make allowance increases) would immediately take place while the skim milk composition factor would not be implemented until much later and would delay any benefit farmers could see from that change. USDA has cut that implementation period from 12 months to 6 months.
The other two changes from the proposed decision to the final decision involve the increases to the make allowances. USDA is adding a $0.0015 marketing cost to all make allowances and modifying the methodology used to determine the nonfat dry milk make allowance.
USDA's Economic Impact Analysis
USDA AMS also provided its own economic impact analysis using historical data from the 11 federal orders to determine the impact on each order. Total pool value for seven of the orders (including F.O. 5, 6, & 7) would have increased anywhere from $44 million to $508 million over the past 5 years depending on the order. The Arizona, Pacific Northwest, California, and Upper Midwest orders all would have seen pool value drop from $17 million in the PNW to $325 million in the Upper Midwest.
Accoridng to AMS, Class I Revenue in the three southeastern orders would have increased by $459 million in F.O. 5, $198 million in F.O. 6, and $320 million in F.0. 7.
Further Reading:
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