The COVID-19 pandemic disrupted plenty of commodity markets and some of the most glaring examples occurred in the dairy industry where losses exceeded $725 million, according to the National Milk Producers Federation. Now, the industry is looking to recoup losses and prevent the problem from recurring, but dairy leaders are far from united on the path forward.
Last week, NMPF announced plans to ask USDA to request an emergency hearing to consider making a key change in the way milk is priced under federal milk marketing orders.
“We examined a range of ideas in an effort to help producers recoup their losses and also make sure Class I pricing is revenue neutral,” said NMPF CEO President and CEO Jim Mulhern. At the same time, he said NMPF “was trying to be true” to the historic farm bill agreement that was developed in conjunction with the International Dairy Foods Association.
Under that agreement, the price for fluid milk (Class I) is fixed at 74 cents per hundredweight over an average of the prices for Class III (milk sold for cheese) and Class IV (butter and milk powder).
“It worked fine until all hell broke loose during the pandemic,” Mulhern explained. The disruption “laid clear the asymmetrical risk born by producers.”
NMPF is proposing to adjust that “mover” for fluid milk every two years based on conditions over the prior 24 months. with the current mover remaining the floor. To make that change, NMPF plans to make a narrow request to USDA, limiting the hearing specifically to consider changes to the mover, after which USDA would have 30 days to issue an action plan that would determine whether the agency would act on an emergency basis.
But other dairy organizations say that, if USDA is going to consider changes as a result of NMPF’s request, other options should be considered.
Earlier this week, the Dairy Business Association, Edge Dairy Farmer Cooperative, the Minnesota Milk Producers Association and the Nebraska State Dairy Association announced their own proposal for FMMO reform, a plan they call “Class III Plus.” They say it would be a “long-term fix to several existing milk pricing problems — not just correcting issues of the past 24 months.”
“Our proposal looks to the future. It would make lasting changes to the milk pricing system that will limit negative PPDs in the future and the possible negative effects from future crises,” said DBA President Amy Penterman, a Wisconsin dairy farmer.
The Class III Plus proposal would, among other things, tie the Class I (fluid) skim milk price to the Class III (cheese) skim milk price plus an adjuster and do away with advanced pricing, a cause of the negative PPDs last year. The proposal is also revenue-neutral, therefore more equitable among farmers, processors and customers.
These groups say the NMPF plan “improves a few components of the current pricing structure, but largely focuses on the short term and revenue that farmers did not earn in 2020.”
“We want to make sure that if a hearing is granted, the result will be lasting, beneficial changes to the pricing formula,” said Edge President Brody Stapel. “Federal Milk Marketing Orders need to be reformed, but an extremely limited hearing now, which NMPF is seeking, would destabilize the system rather than solve fundamental issues, which is our ultimate goal.”
Mulhern says he’s not surprised that dairy groups offered additional proposals and he expects that others may also come forward. At the same time, he suggested that those who are critical of NMPF’s plan don’t really understand the group’s proposal.
He also expressed concern about IDFA members, especially after dairy farmers and dairy processors came together to forge their historic farm bill agreement.
“I’m disappointed that they didn’t lean in” on the proposed change, Mulhern said. “It doesn’t set a good path for the future.
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IDFA President Michael Dykes said the Class I mover update is on his board’s agenda for their meeting next week.
Others have suggested the process of seeking change could take so long that the issue may end up in the next farm bill; the current legislation expires in 2023.
If history is any guide, it could be 18-24 months before USDA could do the research, hear testimony and come up with a final rule, says Sara Dorland, a managing partner at Ceres, a commodity advisory firm that works with dairy producers. “Maybe optimistically you could get to implementation by 2022 but 2023 is probably the more likely timeline.”
Agriculture Secretary Tom Vilsack told the North American Agricultural Journalists on Monday that given the division in the industry, it was too soon to make a change in the pricing formula.
“I know that within the dairy industry there are conversations, and I think those conversations need to mature a bit more before anybody makes a decision that there's going to be a significant change,” he said.
Mulhern said that some groups may try to slow the process down but “hopefully, USDA will have the ability to move quickly on this. These are not complicated issues.”
NMPF plans to send its formal request to USDA within the next two weeks.
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