dairy margin

Pushing for Improved Dairy-Pricing

Dan Dairy, Marketing

Many dairy producers have suffered losses due to the extreme price disruptions that have been caused by the Covid-19 pandemic. Thus, the National Milk Producers Federation (NMPF) is calling for changes to the so-called Class I fluid milk price mover to help producers recover from those losses. They note dairy farmers may lose roughly $800 million in revenues under the current Class I mover, so re-examination is necessary.

dairy margin
Filling The Milk Storage Tank In Modern Dairy
By Lik Studio/Shutterstock

In a release, NMPF President and CEO Jim Mulhern said “We are seeking consensus across the dairy industry for changes to the Class I mover that remedy economic damage to dairy farmers who have disproportionately suffered as a result of this pandemic. The intent behind the current mover was a revenue-neutral solution to the concerns of fluid milk processors about hedging their price risk. With that balance severely upended due to the pandemic, a modified approach is necessary. We need a solution that provides more equity and balance between farmers and processors.”

According to NMPF, the current Class I mover used to price fluid milk in federal milk marketing orders took effect in 2019. It applies a $0.74/cwt adjuster to the monthly average of Class III and IV prices. That replaced the previous Class I formula, which was based on either the Class III or IV price each month, whichever was higher – an approach that worked for farmers but made it more difficult for fluid milk handlers to hedge milk prices using the futures market. The 2019 change was intended to be revenue-neutral and was widely supported across dairy when it was implemented. But the significant gap between Class III and IV prices that has developed during the pandemic has exposed dairy farmers to asymmetrical losses not experienced by processors.

Last week, the NMPF Executive Committee unanimously supported a motion directing the organization, along with other industry stakeholders, to explore updates to the pricing formula that restore balance and better protect dairy producers. The committee also discussed other dairy-pricing improvements as part of an ongoing in-depth NMPF examination of important issues related to Federal Milk Marketing Orders.