This past week USDA released a draft of the final rule for modifying the milk pricing formulas in the Federal Milk Marketing Order program. The new regulation becomes official when they are formally published in the Federal Register, probably in the next week or two. Back in July, a recommended decision had been released which laid out what changes USDA believe needed to be made to the Class I, II, III and IV pricing formulas based on their hearing findings. Interested parties had 60 days to comment on that proposal. You can read my article on the substance of the recommended decision here.
USDA reviewed 128 comments and did make some adjustments in the final rule. One adjustment is to reduce the delay in the producer positive change to the component values in the Class III and IV formulas from 12 months to six months. MPC had requested the elimination of this delay. The other significant change was to actually increase the Class III and IV make allowances slightly by adding a marketing cost to the manufacturing allowance. This change will increase the make allowance by between 2-3 cents per cwt. In addition, USDA modified the calculation of costs in the make allowance for nonfat dry milk, which results in about another 9 cent increase in the Class IV make allowance. They also made modifications of Class I differentials, but not in California. The bottom line is Class I differentials are going up in California by 60-80 cents per cwt. Class III and IV prices are dropping by 85-90 cents per cwt. due to increases in the make allowance. Changing the base Class I price back to the “higher of” Class III or IV should be price positive to producers over time, as will the elimination of barrel cheese prices from the Class III formula. But the value of those changes for producers will vary from month to month and year to year.
November 19, 2024
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