Twenty Years Overdue? Why Producers Are Pushing for These 7 Major Changes to FMMO

Sentiments have dramatically shifted in just a year’s time for the dairy industry. A year ago, dairy farmers were still seeing high costs, but they also saw higher milk prices. This year, margins are some of the tightest dairy producers have ever seen. 

“We had a little bit of pressure get relieved in the last couple of months, but over the summertime, we hit record low margins on the DMC (Dairy Margin Coverage) numbers. And that's putting farmers in a tough spot,” says  Stephen Cain, Senior Director, Economic Research and analysis at National Milk Producers Federation (NMPF) and US Dairy Export Council.

The tight margins triggered dairy margin coverage program payments from FSA every month so far this year. DMC is a risk management tool passed in the 2018 farm bill. 

“I think most folks are pretty pleased with the dairy margin coverage program and how it operates,” says Jackie Klippenstein, Sr. VP and Chief Government & Industry Relations Officer, DFA. “It needs to be modernized, though, and reflect today's modern dairy to make sure the farmers receive the benefits from the program.”

A Serious Look at FMMO

While DMC has been a risk management tool producers are able to tap into when feed prices are high and milk prices are low, the dairy industry is also pushing to modernize a separate federal program: the Federal Milk Marketing Order (FMMO). The industry has been holding hearings to gather input on what updates should be made. 

NMPF has been working on the issue for more than a year, tapping into input from their members in all regions of the country. The dairy industry says the FMMO are overdue for an update, as NMPF hasn’t seen a large overhaul or update since 2000. 

NMPF says based on feedback from producers, the FMMO recommended updates and changes include:

• Return to the “higher of” Class I mover
• Update Class I differentials throughout the U.S.
• Discontinue use of barrel cheese in the protein component price formula
• Extend current 30-day reporting limit to 45 day on forward-priced sales of NFDM and dry whey
• Update the milk component factors for protein, other solids and nonfat solids in the Class III and Class IV skim milk price formulas
• Develop a process to ensure make allowances are reviewed on a more frequent basis by enacting legislation authorizing USDA to conduct mandatory plant cost studies every two years and report results to the dairy industry
• Proposed interim make allowance adjustments

The biggest change being demanded from producers, according to NMPF, is the return to the “higher of” Class I mover. 

“Today, it's the average of Class III and IV prices plus 74 cents,” Cain says. “ We're pushing to move back to the higher of. We used to be at the higher of, we made the change several years ago at the behest of the processor groups in looking for better opportunities for Class I hedging, we came up with a solution that was meant to be revenue neutral and wasn't going to put more money in the pocket of producers. It was meant to just be a change that's going to allow hedging to be more feasible,” he adds. “We had a pretty stark realization in 2020, where we realized that this was not revenue neutral. It's costing dairy producers about a billion dollars in Class I skim milk revenues. And so we're looking to move back to the Class I to the higher of for class mover because it works. It's been tested, it's been tried. We know it works for dairy farmers, it works for the industry.”

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NPMF says there are two separate ways the dairy industry is trying to push these changes through Washington, one is the new farm bill, the other is the federal order process. 

“We're taking a two-prong approach,” Cain says. “This is such an important factor for dairy farmers, we want to make sure we do it right and the fastest way possible. So, we're taking one route to the farm bill, and the other route is the federal order process. Whichever one works first is great, but we feel confident that we'll get this passed. It's just one way or the other, we will hopefully get this done.”

A Possible Dairy Revenue Win with Conservation

As the dairy industry looks to the farm bill as a possible vehicle to push those changes through, Klippenstein says there are other positives that could come in a new farm bill for dairy, including conservation programs. 


“Other commodities, I think, are still trying to figure out how they fit in sustainability. For dairy, it's quite clear, we're both a carbon emitter, but also a carbon sink,” she says. “We're part of the solution when it comes to addressing climate concerns.”

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Klippenstein says she understands conservation and climate programs aren’t always viewed in a positive light, but she thinks this could be another valuable revenue stream for producers. 

“Dairy farmers right now, because of our customer base, are being asked to do more. They're being asked to measure and verify and report the carbon credits and environmental credits that they're creating on their operation. And these conservation funds can help them cost share some of that progressive work they're doing on their farm,” she says.

Klippenstein thinks these conservation and carbon programs have the potential to be more valuable than the price of milk for dairy farmers, which could be a major win for dairy farmers. 

“The U.S. government and our customers are now investing on dairy farms to see the accelerated adoption of technology and practices many of which farmers are already doing on their operation,” she says. 

The White House recently announced its allocating millions of dollars to address methane emissions from California’s dairies. DFA just received $22 million dollars from USDA’s regional conservation program grant funds. That money is intended to help develop feed additives aimed at reducing methane emissions from dairy cattle.