The United States Department of Agriculture has announced it will implement how it calculates the Class I price mover May 1.

The change in the calculation was mandated by the 2018 farm bill. But implementation was delayed due to the government shutdown brought on by the impasse over the federal budget earlier this year.

Under the old rules, the Class I skim milk price was calculated used the “higher of” the Class III or Class IV skim milk price. Using the “higher of” ensured fluid milk prices would attract milk into fluid plants. However, the practice made it difficult for fluid users to hedge their purchases on the futures market because the prices could switch from Class III to Class IV, and back again.

The solution in the 2018 farm bill was to average Class III and IV prices and add 74¢/cwt. The 74¢ represents the historical average of what the Class I price would have been if the Class III and IV had been averaged.

“In accordance with the 2018 farm bill, the amendment is effective indefinitely, until further modified, and may not be modified sooner than two years after the effective date of this rule,” according to a news release issued by USDA’s Agricultural Marketing Service March 8.

You can view the original article along with the Federal Register notice of the change here.

“Reprinted by permission of Farm Journal media, September 2018”

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