Every milk producer wants to maximize his revenue. Advice centers around efficient operations, maximizing components, etc. Some of the revenue is not in a producer’s control such as the value of cheese, butter, and other solids. This post will take a very different approach. The location of the producer’s operation can also significantly impact revenue.
The majority of U.S. milk is paid for based on the Federal Order pricing which sets a minimum price for producer milk. The payment system is somewhat complicated. Being in the right place can make a big difference.
As an example, in March of 2023, prices in different Federal Orders varied from $18.29 per hundred weight to $23.51 per hundred weight. The location difference is based on the Class mix of milk in a Federal Order. That mix can come from the needs in a Federal Order and that blend can be significantly varied based on de-pooling.
One way of comparing the milk prices is by the Uniform price of each Federal Order. The table below shows the Uniform price of eight Federal Orders for 2019, 2020, 2021, and 2022. The reason for listing only these Orders is that the three in the Southeast U.S. are major Class I producers which do have the advantage of high prices, but a declining market,.
In each of these four years, the ranking is similar with a few exceptions. The Northeast Federal Order ranks at the top of the list each year. Other Federal Orders like the Southwest ranked second in 2019, but fell to fifth place in 2020. The Upper Midwest was at the bottom of the list in 2019 but rose to fifth place in 2021 and 2022. California has moved from fifth place in 2019 to last place the following three years.
At the top of the chart, the Northeast has two things in its favor. It has a very balanced mix of milk Classes and has strict rules for de-pooling which helps maintain that balance. Class I milk is 31% of the mix in 2019 and then maintains a stable 30% for the next three years. The pie charts for each year look nearly identical. Class III milk for cheese is the second largest piece of the pie, varying from 26% to 29%, a minimal change.
Does location make a difference in Federal Order prices? ABSOLUTELY!