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MILK PRICING UPDATES & FEDERAL MILKMARKET ORDER (FMMO) REFORM

ISSUE: The system of milk pricing through the federal orders based on geographic areas

across the country and type of dairy products produced is complex. Several proposals

were presented at the recent FMMO hearings, and key issues need to be addressed as we

move forward.


AMERICAN AGRI-WOMEN REQUEST: We request returning to the ‘higher of’

formula as articulated in the recent farm bill that moved through the May 23, 2024 House

Ag Committee markup. This is key while awaiting USDA’s preliminary decision from

the Federal Order hearing.


BACKGROUND: The milk pricing formula had an adjustment in the 2018 Farm Bill

(moving from a “higher of” calculation to an “average of” calculation) that provided new

risk management tools for the beverage milk industry to allow them to use futures

contracts to hedge their beverage milk price risks. But this formula change created a

cascading failure for American dairy farmers through significant milk check reductions.

Farmers have suffered the effects of a shortfall of billions of dollars in FMMO

component pricing revenue sharing pools in the past several years. This milk pricing

formula change did not proceed through a formal USDA FMMO hearing process and

resulted in significant financial damages to dairy farmers across the nation through milk

price volatility and the unexpected inability to utilize risk protection tools that they had

already purchased.


AMERICAN AGRI-WOMEN REQUEST: AAW asks for no “make allowance”

increases at this time.


BACKGROUND:

Make allowances are embedded into the milk pricing formulas to subtract from the

announced class and component prices. It is the processor’s cost to make the products

that are used in the pricing formulas. This has the net effect of a deduction from the

farmers’ milk checks used to help processors offset their costs of production. Meanwhile,

farmers are expected to reduce their cost of production in order to meet cash flow needs.

National Milk Producers Federation (NMPF) and International Dairy Foods Association

(IDFA) have separate proposals under hearing consideration by USDA that would raise

make allowances by different amounts, lowering farm milk checks in the process.


AMERICAN AGRI-WOMEN REQUEST: AAW requests mandatory and audited

product processing cost surveys that must be authorized in the final version of the farm

bill, implemented and published by USDA, and then the data used to set make allowances

in a manner that would be vetted through a USDA administrative hearing before these

processor credits result in reductions to farmers’ milk checks.


AAW requests additional products to be included in the mandatory pricing survey.

Mozzarella, for example, is currently excluded from the USDA formula pricing and the

USDA pricing survey, yet processors testified in the FMMO hearing that the make

allowance on their byproduct whey is too small and the prices they pay for milk are being

set too high by USDA. On cross examination, USDA asked these processors if they build

plants to make mozzarella or to make whey, reminding them that the mozzarella is not

price-surveyed by USDA nor is it included in the formula for pricing milk, so the price

they take for that value-added Mozzarella is determined by the processor, creating

additional margin that is independent of the FMMO pricing system. We believe that the

pricing survey must be expanded for informational purposes and market transparency.


AMERICAN AGRI-WOMEN REQUEST: AAW requests long overdue reform to how

farmers vote on FMMO hearing decisions.


BACKGROUD: The processors and cooperatives continue to support bloc voting on

behalf of their farmer members. (This means the farmers do not receive a ballot, but

instead their cooperative votes on their behalf) Most farmers have no idea that a “no”

vote done by their cooperative on their behalf is equivalent to voting ‘no’ to having a

Federal Order in their region. In other words, if cooperatives and/or farmers vote ‘no’ to

any Federal Order change, they are actually voting to discontinue their Federal Order, as

amended. The only way to keep the Federal Order is to vote ‘yes’ to ALL the changes,

even if the farmers don’t want them. There is chatter in the dairy industry that some are

banking on this type of opportunity to weaken or dissolve Federal Orders in key regions

of the U.S., which would mean farmers no longer have the status quo but instead are

entering an unprecedented area of uncertainty and more price fluctuations and

inconsistency without any oversight from USDA.

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