Most of the U.S. producer milk is paid based on the Federal Order standards. Below is a table with the prices paid in each Federal Milk Marketing Order (FMMO) in 2023 and 2024. They are ranked based on their 2024 Uniform (average) payment per cwt. Florida has the highest paid producer milk. The two biggest FMMO’s, California and the Upper Midwest are at the bottom of the list. This post will examine the reasons. During 2023 and 2024 there was significant de-pooling. Class I milk cannot be de-pooled. The difference from top to bottom is $6.04 per cwt. which is 24%!
The prices shown are based on the monthly Federal Orders for milk delivered. These prices are not an index, they are the real payments.
The top three in the list above are easy to explain. All three are primarily Class I milk, the highest priced milk that cannot be de-pooled with prices determined by the Advanced System. The fourth one in the list, the Northeast Federal Order, has rules that minimize de-pooling. The fifth Federal Order listed is Arizona, the fourth and final Federal Order paid on the Advanced System. Arizona uses over 50% of its milk in Class III and Class IV. That dilutes the Uniform price by $4.10 per cwt. compared to Florida.
Table II lists each class’s Agricultural Marketing Service (AMS) index values. Class I prices are the base price before the location differential is added. The differential is unique in each Federal Order. The highest prices that can be de-pooled are shown in a bold format. They are the candidates for de-pooling.
The differential of $6.04 per cwt., as mentioned in the top paragraph, is huge. The milk Class mix in each Federal Order and de-pooling have a huge impact. In this prior post, the Class III pricing was detailed to show the impact of high butterfat prices combined with relatively low cheese prices.
The three at the bottom of the list, the Central, California, and the Upper Midwest Federal Orders all have continuous and significant de-pooling. What does this mean for producer’s revenue?
When milk is de-pooled, prices are not AMS priced. The price is negotiated to favor the producer and the processor. The producer prices are higher than what the Uniform price would pay if they were not de-pooled. This does significantly impact the producers that have not de-pooled because the higher priced products are reduced in the mix used to calculate the Uniform price.
Producers for a cheese plant in the Northeast, for instance, would not have an opportunity to de-pool when Class III milk prices are high. The Uniform price compared to the producer’s Class III milk would be lower as it is averaged for all the milk in the Federal Order. The processor would not have an opportunity to negotiate the milk price as the minimum price established by the Federal Order would be enforced. All milk other than Class III would have an increase in price as the Uniform price paid would be averaged with the higher priced Class III price.
Is de-pooling a fair process? The Uniform price was established to level the pricing for all producer milk. De-pooling upsets level pricing. Is Class I milk for drinking more valuable than the milk for cheese or butter? Most all U.S. milk is Grade A milk. These items were not addressed in the recent USDA adjustment for producer milk prices.
Where is the best Federal Orders for producer revenue? It’s in the Federal Orders with the most fluid milk.
