Dairy Processing - September/October 2024 - 74

COMMODITIES OUTLOOK
Changes ahead
USDA is proposing several updates to FMMO.
by Nate Donnay | nate.donnay@stonex.com
W
hen it comes to perishable products, the inherent
delicate nature of such products puts the seller at
a disadvantage. As such, the system of minimum
prices in the Federal Milk Marketing Orders (FMMOs) is partly
an attempt to determine a 'fair' price for milk each month
without relying on direct negotiations between farmers and
processors that might leave farmers in a difficult negotiation
situation.
To set a minimum price that needs to be paid back to dairy
farmers, the US Department of Agriculture (USDA) surveys dairy
plants to find out at what price they are selling base commodities,
specifically cheddar cheese, butter, nonfat dry milk and dry whey.
The USDA then uses a set of complicated formulas to
calculate what the value of the milk is based on the price of the
dairy products. Billions of dollars worth of milk is priced with
these formulas each year, so small changes in the formula can
add up to real dollars for farmers and processors.
QUICKLY ADDING UP
The formulas have to make four major assumptions. First, how
much fat, protein and other solids are in the milk coming into
the plant. Second, which base commodities should be used to
set the milk prices. Third, how much finished product (cheese,
74 SEP-OCT 2024 | DAIRYPROCESSING.COM
PROPOSED CHANGES
The USDA is proposing five changes to the pricing formulas:
increase the make allowances; remove 500 lb barrels from
the cheese/Class III calculation; go back to the " higher of "
butter, etc.) will that milk produce. And, lastly, how much does
it cost to transform the milk into those finished dairy products.
The assumptions in the formulas were last updated in
2008, and with the rise in the cost of most goods after the
pandemic, the industry spent months debating what changes
needed to be made to the formulas that set the Class I, II, III
and IV milk prices in the FMMOs. After months of hearings,
and months of further analysis by the USDA, the agency
released the proposed changes to the FMMO pricing formulas.
The industry then had 60 days to submit comments on the
proposed changes. Next, the USDA has its 60-day period to
evaluate those comments before it publishes recommended
changes. Finally, dairy farmers and cooperatives will vote on
whether to adopt the changes or completely dissolve their
federal order. There is some debate in the upper-Midwest
regarding whether these changes should be accepted or not,
but signs point to farmers eventually voting to accept the
changes. That means implementation would likely be in 2025.
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Dairy Processing - September/October 2024

Table of Contents for the Digital Edition of Dairy Processing - September/October 2024

Dairy Processing - September/October 2024 - Intro
Dairy Processing - September/October 2024 - 1
Dairy Processing - September/October 2024 - 2
Dairy Processing - September/October 2024 - 3
Dairy Processing - September/October 2024 - 4
Dairy Processing - September/October 2024 - 5
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