USDA revises formulas for Class III, Class IV prices

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Last Thursday, USDA announced its final decision to amend the pricing formula for milk for manufacturing use under all federal milk marketing orders. Although federal order reform was mandated by the 1996 Farm Bill, this particular rule has been delayed for more than a year.

Congress required that USDA review the pricing formulas following the reform effort begun by the 1996 bill. A public hearing was held in 2000 to consider proposals to change the formulas, and effective Jan. 1, 2001, the agency issued revised formulas. However, a U.S. District Count enjoined the revisions later that month. Following the court injunction, USDA then issued a recommended decision again altering the pricing formulas in October 2001.

This final decision makes only a slight deviation from that recommended decision. The biggest difference is in the Class III and Class IV formulas to recognize the loss of milk that happens during the delivery of milk from the farm to processing plants – due to residue left inside the tanker, spills during transfer and so on.

As such, the make allowance for dry whey is increased from 14 cents to 15.9 cents per pound. All other make allowances remain unchanged.

Analysis from the Chicago Mercantile Exchange’s Daily Dairy Report indicates that if the new formulas had been in effect from January 2001 to July 2002, the Class III price would have been 25 cents higher, while the Class IV prices would have been about 16 cents lower.

The decision has regional implications, with some experts predicting the outcome will not have a big impact on Upper Midwest producers due to processor premiums for producers. However, producers in Western and Pacific Northwest federal orders will probably find the decision highly controversial since it affects the competitiveness of their cheese with that from California.

The final rule was published in the Federal Register and producers within each marketing order will vote on the change. Each amended federal order must be approved by either two-thirds of producers who ship milk within the federal order, or by producers who supply two-thirds of the milk to the order. USDA anticipates the process will be completed in four to six weeks.

Source: USDA, CME



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