Ag Policy Blog

Farm Groups Call on USDA to Immediately Change Dairy Price Mover Formula

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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The country's two largest general farm groups have joined forces in a letter calling on USDA to change the dairy price formula now rather than wait for the full Federal Milk Marketing Order (FMMO) procedures to issue a rule. Under a change in the 2018 farm bill, dairy farmers have lost $1 billion due to a change in the formula. (DTN file photo by Chris Clayton)

The country's two largest general farm organizations are calling on USDA to "provide price stability" to dairy farmers and change the Class I mover formula outside of the formula used since the 2018 farm bill.

The American Farm Bureau Federation (AFBF) and National Farmers Union (NFU) joined forces to write Agriculture Secretary Tom Vilsack point out the price challenges facing dairy farmers. That includes "the ongoing milk price spreads that have substantially lowered farmer milk prices under the current 'average of' Class I mover formula."

AFBF and NFU want USDA to issue an "interim final decision" when it comes to the current Federal Milk Marketing Order to return the Class I mover formula away from the "average of" the Class III and Class IV prices to the "higher of" Class III or IV prices. Before the 2018 farm bill, the Class I mover was based on the higher of Class III or IV. It was changed in the 2018 farm bill to the average of III and IV.

The change from "higher of" to "average of" has been bleeding dairy farmers on their milk checks. In January alone, the difference was about $55 million. The farm groups noted, "each additional month without a change poses a threat to dairy farmers' livelihoods."

The 2022 Ag Census, released last week, shows there are 36,024 dairy farmers nationally, a loss of 18,575 farms since the 2017 Ag Census. That's a decline of 34% in the number of dairy farms over a five-year stretch. The number of dairy cows over that time fell 2.4% to 9.3 million milk cows.

There have been wide gaps between Class III and Class IV prices. During the pandemic, Class III values were higher and the Class IV was disrupted.

More recently, the price swings between III and IV have flipped, but the CME shows the February Class III price at $16.14 per cwt while the Class IV price was $19.91. The "higher of" is $19.91, but the "average of" is $18.03 per cwt.

The AFBF/NFU letter states more than $1 billion was lost to producers because of using the average versus the higher price since the formula change went into effect in May 2019. "Dairy farmers with pooled milk face ongoing threats to decreased milk checks linked to the current Class I mover formula."

AFBF and NFU both have policies calling for the immediate return to the "higher of" formula.

The AFBF/NFU letter also highlights the excruciating procedures in changing the Federal Milk Marketing Order (FMMO).

"The FMMO hearing process has completed only step 5 of a 12-step process before changes would potentially go into effect for our dairy farmers."

The farm groups stated dairy farmers right now "remain stuck with current pricing regulations until USDA publishes a final rule."

The groups added, "Emergency implementation of the 'higher of' Class I mover formula will staunch persistent losses with a policy that has left dairy farmers struggling to make ends meet."

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