Dairy Processing - September/October 2023 - 72

COMMODITIES OUTLOOK
Nate Donnay | nate.donnay@stonex.com
THE E
COST
OF
processing
The way the US pricing system is
constructed, higher make allowances
mean lower minimum milk prices.
72 SEP-OCT 2023 | DAIRYPROCESSING.COM
nergy costs, labor costs, insurance, packaging,
interest rates. The cost of everything has increased
in the past 17 years, but the assumed processing
costs in the Federal Milk Marketing Orders (FMMO)
haven't changed. The industry is in the process of
updating processing costs, called make allowances, but
with the way the US pricing system is constructed, higher
make allowances mean lower minimum milk prices,
which farmers obviously don't like.
FMMOS
First, let's talk briefly about how milk is priced in the
FMMOs. If farmers had to negotiate a daily selling
price for their milk they would persistently be at a
disadvantage due to the perishable nature of milk. Instead
of trying to find a market price for milk the FMMOs
currently use end-product price formulas.
The USDA surveys dairy plants to find out what
price they are selling basic dairy commodities (cheddar
cheese, butter, dry whey and nonfat dry milk) for. Then
a set of formulas is used to convert the value of the dairy
commodities back to the value for the milk that went into
those dairy products. This is how the Class I, II, III and
Credit
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Dairy Processing - September/October 2023

Table of Contents for the Digital Edition of Dairy Processing - September/October 2023

Dairy Processing - September/October 2023 - Intro
Dairy Processing - September/October 2023 - 1
Dairy Processing - September/October 2023 - 2
Dairy Processing - September/October 2023 - 3
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Dairy Processing - September/October 2023 - 5
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