In this column, Progressive Dairy summarizes issues in the news and attempts to describe how they might affect dairy farmers. Look for more extensive background, details and updates at Progressive Dairy.
Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Dave Natzke
DAIRY POLICY
What happened?
The National Milk Producers Federation (NMPF) is updating members on the organization’s activities regarding potential Federal Milk Marketing Order (FMMO) reforms. NMPF hosted three webinars and a large-scale summit in July.
What’s ahead?
NMPF task force panels will continue to refine recommendations this summer, with a plan to forward a final package of recommendations to the NMPF Economic Policy Committee and board of directors this fall. If adopted by the board, NMPF would petition the USDA for a national FMMO hearing on the package in late 2022 or early 2023.
Separate from an FMMO hearing, House and Senate agricultural committees have also starting hearings and listening sessions regarding dairy provisions of the 2023 Farm Bill.
Bottom line
Jim Sleper, former CEO of Southeast Milk Inc., who currently oversees NMPF’s FMMO modernization process, said the process began last November with a member survey by NMPF’s Economic Policy Committee, seeking to evaluate interest in pursuing reforms through an FMMO hearing. After receiving overwhelming response, a task force was established in December 2021.
NMPF then created working groups within the task force to examine four primary issues: Class I pricing (Class I mover and location differentials), dairy products and product specifications used to establish class prices, milk component composition used in current pricing formulas and make allowances.
The task force unanimously recommended 10 proposals to the Economic Policy Committee in those four areas, which are now being shared more broadly with NMPF members and other stakeholders for further discussion and refinement.
Sleper said any recommendations will be national in nature, leaving pooling-depooling issues, diversion limits and negative producer price differentials (PPDs) to address on an order-order basis. He said NMPF would work with the American Farm Bureau Federation, International Dairy Foods Association (IDFA) and other stakeholders in moving the process forward.
FMMO PRICES AND POOLING
What happened?
Administrators of the 11 FMMOs reported June 2022 uniform milk prices, PPDs and milk pooling data. As expected, uniform or blend prices inched higher in most FMMOs, while the wide spread between Class III-IV milk prices affected pooling.
What’s ahead?
The outlook for July prices remains strong, although there will likely be a slight downturn. The July 2022 advanced Class I base price is unchanged from June at a record-high $25.87 per hundredweight (cwt). With zone differentials, July 2022 Class I prices will again average $28.69 per cwt across all FMMOs, ranging from a high of $31.27 per cwt in the Florida FMMO No. 6 to a low of $27.67 per cwt in the Upper Midwest FMMO No. 30.
Even though the Class I base and individual FMMO Class I prices are unchanged for July, the newer Class I mover “average of plus 74 cents” formula slightly reduced Class I prices paid to producers compared to the previous “higher of” formula. Based on Progressive Dairy calculations, the Class I mover calculated under the “higher of” formula would have resulted in a Class I base price of $25.94 per cwt, 8 cents more than the price determined using the “average of plus 74 cents” formula.
July Class II, III and IV milk prices won’t be announced until Aug. 3. At the close of Chicago Mercantile Exchange (CME) trading on July 18, July Class III futures price was $22.55 per cwt, down $1.78 from June. The July Class IV futures price settled at $25.86 per cwt, up 3 cents per cwt from June.
If current prices hold, July-September Class III-IV price spreads would average $3.55 per cwt, providing large incentives for Class IV depooling.
Bottom line
June uniform prices at standardized test continued to set new records in most FMMOs. The lone exception was in the Upper Midwest, where the uniform price was down 71 cents per cwt from May. The high uniform price for June was $30.60 per cwt in the Florida FMMO No. 6; the low was $24.63 per cwt in the Upper Midwest FMMO No. 30.
With butterfat, protein and SCC premiums, the uniform prices “at test” will be at least $2 per cwt higher than statistical uniform price in most FMMOs utilizing multiple component pricing.
June baseline PPDs were higher in applicable FMMOs, up 17 cents in the Upper Midwest and more than $1 higher in Northeast, Central, Mideast, California, Pacific Northwest and Southwest FMMOs. PPDs have zone differentials, so actual amounts will vary. Also, individual milk handlers apply PPDs and other deductions to milk checks differently.
Overall milk pooling in June was down about 500 million pounds from May, at 12.1 billion pounds. The larger June Class III-IV price spread brought more Class III milk back in FMMO pools – but kept a lot of Class IV milk out.
Class IV pooling across all FMMOs was down about 2.1 billion pounds from May and represented about 8.9% of the total milk pooled, the fourth month below 10% so far in 2022. In contrast, Class III pooling was up about 2.1 billion pounds from May and represented about 52.7% of total milk pooled, both the third-highest totals of the year.
