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A petition for a national hearing before high ranking USDA officials has been denied.

The petition, spearheaded by Progressive Agriculture (Pro-Ag) Organization and supported by several farm organizations, milk cooperatives, and county commissioners, asked for a hearing to allow farmers to bear witness to the struggles faced by dairy farmers unable to make ends meet due to the current pricing formulas.

Dana Coale Deputy Administrator USDA Agricultural Marketing Service rejected the petition, saying that based on a USDA analysis, the proposed regulatory amendments seem "unlikely to achieve" the goal of increasing dairy farmer revenue.

Arden Tewksbury, manager of Pro-Ag, pointed out that in 2016 the average dairy farmer shipping milk to a milk handler regulated under one of the ten federal milk marketing orders received an average price of $15.38 per cwt. (hundredweight).

"At the same time, the USDA’s figures clearly illustrate that the national average cost of producing milk in 2016 was $21.87 per cwt. This means the average dairy farmer lost $6.49 per cwt. (or 60 cents per gallon) on all their milk produced in 2016," he wrote.

He added that the main thrust of the petition calls for the abolishing of the present pricing formula used by the USDA to price milk and enact a new pricing formula that would consider the dairy farmers’ cost of producing milk.

The proposal

Under the proposal, the current three manufactured milk classes would be consolidated into one: a new Class II, while Class I would continue to include fluid milk products.

The proposed pricing for new Class II manufacturing milk would incorporate an annual average cost of production as announced by USDA. Pricing for Class I would be based on the Class II price, adjusted by a Class I differential.

According to the petition, such revisions would improve dairy farmer revenues by ensuring milk production costs are covered, while maintaining reasonable dairy product prices for consumers.

The Response

Coale said that USDA officials used a national econometric model to estimate the impact of basing minimum Class I prices on the USDA national average cost of production. The model compares projected results of pricing changes to a baseline (incorporating no changes) over a 10-year period.

“In this scenario, we found it unlikely that manufacturer of your proposed Class II products would choose to participate in the marketwide pool within FMMOs as minimum regulated milk prices would not be linked to dairy commodity market prices they receive for manufactured products,” Coale wrote. “Consequently, only producers directly servicing the Class I market would see increases in their all-milk prices compared to the baseline.”

Other producers would experience a decrease in their all-milk prices because manufacturers would choose not to pool their milk within an FMMO and thus would not be required to pay minimum FMMO prices, she continued.

“Higher prices to some producers would nevertheless stimulate increased raw milk production, further unbalancing the milk supply and demand relationship,” Coale said.

Marketing tool

The Deputy Administrator maintains that the FMMO program establishes minimum prices based on the relative market value of dairy products as driven by market supply and demand and is not designed to be a price or income support program.

“Instead, the FMMO program is a marketing tool that helps dairy farmers maintain a better balance in negotiating with processor by enforcing market-based minimum prices, monitoring the accuracy of milk weights and tests, and providing extensive market information to producers and to assist in market negotiations,”Coale wrote. “Your proposal appears to seek such a price or income support and based on our initial econometric analysis it seems unlikely that the regulatory amendments you proposed would achieve your goals increasing dairy farmer revenue or conform to established FMMO tenets. Therefore, I must deny your hearing request at this time.”

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