Like I said: "It's the pricing formula"
Dairy farmers are continually complaining about the negative PPD (producer price differential), and rightfully so. However, the evil spirit looms behind the negative PPD's.
It’s the erratic pricing formula that the USDA uses to price milk to dairy farmers. I’ve had dairy farmers actually scream to me that their buying handler is deducting a tremendous amount from their dairy farmer’s milk check through the provision called the PPD.
No, the handlers are not deducting the PPD money from their milk checks. Actually, the pricing formula used to price dairy farmers’ milk checks does not allow the amount of money to be made available to all dairy farmers. (That’s the problem.)
Look at it this way. In the Federal Order in California last month, the PPD was over $9 per cwt. (one hundred pounds of milk). The pay price in California was around $13.49 per cwt. Now, if you take $9 PPD and add it to the $13.49 price, you will come up with nearly $22 per cwt. This $22 per cwt. is not in the formula, but it is approximately the national average cost of production (as we have in bill S-1640).
Now look at Federal Order One. The pay price in November was $18.27 per cwt. while the PPD was $5.07. By adding the $5.07 to $18.27, it gives you $23.24 per cwt. This is the exact price dairy farmers would receive for their milk under the proposed dairy bill which is called the Federal Milk Marketing Improvement Act.
Boys, what the PPD proves is that in most instances the present milk pricing formula is not geared to give you a price that will allow you to cover your total cost of production. Now then, you have two choices: 1) You can keep complaining about the negative PPD or 2) You can join up with the efforts we have to develop a new pricing formula based upon the national average cost of production.
Some will challenge you by saying that all dairy farmers have a different cost of production. So, how can we price milk on the national average? To that argument I say, “Phooey!” Do you as a dairy farmer under the present pricing formula realize that 70% of the milk is considered to be used for manufactured purposes? Now listen, Mr. and Mrs. Dairy Farmer, do you realize that every farmer regulated by Federal Order receives the same price for 70% of the milk that is produced under the Federal Orders?
Then answer this: If the majority of dairy farmers are receiving the same price for milk used for manufacturing regardless of the size of their herd or numbers of cows they milk, then why the heck can’t we have a pricing formula based upon the national average cost of producing?
Yes, Mr. and Mrs. Dairy Farmer, you have been lulled to sleep all these years as to why we can’t price milk to dairy farmers because they have a different cost of production. Hogwash. Either get behind the efforts to have a new pricing formula, or keep complaining about the PPD, which I really call the “producer death disaster price.”
What we put together clearly shows that the PPD represents the amount of money you are not receiving because of the inadequate pricing formula being used.
Arden Tewksbury is manager of Pro-Ag.