Pricing reforms impact milk checks for dairymen

UNIVERSITY PARK, Pa. — The goal of the Federal Milk Marketing Orders is to spread the benefits of the higher fluid milk prices to more dairymen.

“There are 11 milk marketing orders in the system, that came into being in the late 1930s,” said Brook Duer, staff attorney at the Penn State Center for Agricultural and Shale Law.

“Because the producer doesn’t have any control over the utilization of the milk, a system was created where everybody gets paid the same,” he said during the Quarterly Dairy Legal Webinar hosted by the Penn State Center for Agricultural and Shale Law.

There are four utilization classes of milk: Class I is fluid milk; Class II is soft products such as sour cream, yogurts and cottage cheese; Class III is cheese; and Class IV is butter and powdered products.

“The federal order system is meant to create a pool of revenue and divide that up and create a uniform price per hundredweight,” Duer said. “That ends up being the farm price.”

The process to reform the milk marketing orders started in May 2023 with 10 petitioners. After 49 days of hearings, 21 proposals were considered.

“The recommended decision came out on July 15, 2024, and the final decision was published on Dec. 2, 2024, in the Federal Register,” Duer said.

“All 11 referendum votes passed in January 2025 and that cleared the way for the final rule which is the actual amendment of the FMMO regulations,” he said. “The final rule was published in the Federal Register on Jan. 17.”

The effective date for the FMMO Reform of 2025 was June 1, except for the calculations in the in the class pricing that will be effective Dec. 1.

“This has been a long, drawn-out process,” Duer said. “This is a massive reform of all 11 federal orders simultaneously.”

The first change updates the skim milk composition factors.

“That is a tweak to how the Class I price is ultimately determined,” Duer said.

“The biggest need that drove this entire reform effort was the change to the Class I price that had been made in the 2018 farm bill, rather than through a petition process like this,” he said.

“It had to be undone because of some weird issues that occurred during COVID where the cheese price was higher than the fluid milk price,” the attorney explained.

“There was a program for the U.S. government to purchase cheese reserves to try to keep the dairy market economically sound,” he said. “Therefore, there was this demand for cheese all of a sudden and the cheese utilization price went up.”

The reform returns the base Class I skim milk price formula to the higher of the advanced Class III or Class IV skim milk prices for the month.

Another change removes the 500-pound barrel cheddar cheese prices from the reporting program.

“Barrels of cheese are not really traded like they once were,” Duer said. “They are not a good source of market dictated pricing, so this changes the equation to develop the Class III price.”

The reform includes updates to the Class III and IV manufacturing allowances for cheese, butter, nonfat dry milk and dry whey.

“Manufacturing allowances are how much it takes on average for a processor to make a product so they can take those costs out of the equation that determines what the price is to the farmer,” Duer said.

“There is also a tweak to change the equation slightly for the Class I price,” he said.

“The bottom line for all of this is these are all components of various equations that got changed in a couple of places,” the attorney said.

“They are changes to the math to produce the class prices that go out to the farm ultimately after a blend price has been created.”