It’s time to address harmful negative Producer Price Differentials

American Dairy Coalition
The current ease of de-pooling milk out of FMMOs,exploited the extreme situation at hand, allowing processors to increase profitability at the expense of farmers. Along with decreased net pay prices, dairy farmers unexpectedly found they were unable to utilize their purchased risk management contracts that were designed to protect their profitability.

The American Dairy Coalition is asking all dairy farmers to contact their federal legislators and ask them to re-examine the modification they made to the milk pricing formula in the 2018 Farm Bill.

This Class I milk pricing formula which was included in the 2018 Farm Bill, without proper vetting, has created a cascading failure through producer price differentials (PPDs) for American dairy farmers representing over $3.7B of uneven distribution due to depooling over the last 15 months.

Without an immediate milk price solution, future FMMO projections illustrate that harmful negative PPDs will continue to appear on dairy farmers' milk checks through the end of the year. Clearly, this current milk pricing formula has failed, and a better plan is needed in order to stop the financial devastation that approximately 70% of America's dairy farmers are currently facing.

Legislators must enact a much-needed solution for the viability of the American dairy industry. 

The Farm Bill formula change created a failure that resulted in significant financial damages to many dairy farmers because there was no obligation or requirement to prevent processors from toggling in and out of the federal milk marketing orders. The current ease of de-pooling milk out of FMMOs, with different pooling rules in different orders, exploited the extreme situation at hand, thus allowing processors to increase profitability at the expense of farmers.

Along with decreased net pay prices, dairy farmers unexpectedly found they were unable to utilize their purchased risk management contracts that were designed to protect their profitability.

Negative Producer Price Differentials (PPDs) on-farm milk checks were realized prior to the pandemic. This current milk pricing situation is not only pandemic-related. The last 15 consecutive months resulted in negative PPDs and is expected to continue until the end of 2021.

The inequitable distribution of dollars available in the marketplace is causing more farmers to want to be included in the discussion about solutions to the challenges posed through the current milk pricing policy. The current financial state of the dairy industry appears to be collapsing in numerous areas throughout the U.S.  We are seeing a disturbing trend; not only are farmers leaving the industry, but reinvestment in our farms is also stalling at an alarming rate. A proactive outlook and possible future profitability are in question unless we make an immediate change.  

Contact Your Legislators

A legislative fix is necessary:

  • Replace the current milk pricing formula with Class III plus $.50/CWT. This milk pricing formula solution will work better for farmers throughout the U.S. This would immediately allow farmers the ability to use risk management tools and protect their financial wellbeing.
  • There are long-term strategic milk pricing reform issues that need to be addressed when we have a current milk pricing system that relies so heavily on Class I fluid milk- a product whose demand drops every year. Discussions on long-term solutions should begin immediately in order for inclusion in the next Farm Bill.
  • The new NMPF proposal is not a solution. The "Average of $1.63/CWT" does not fix this unacceptable procedural problem because it allows a readjustment to the milk pricing formula every 2 years through legislative action alone. This will continue to misrepresent risk management contracts that are already endorsed. Farmers cannot utilize risk management tools appropriately when milk pricing formulas are constantly changing. It is important to note that if this proposed formula would have been in place for the last 15 months, it would not have prevented processors from de-pooling large amounts of milk, ultimately resulting in large negative PPDs.
  • There needs to be a reasonable risk management tool for processors as well as workable risk management tools for dairy farmers. 

Contact Your Cooperative Board of Directors

Ask them to make the following changes:

  • Any new milk pricing fix must be a viable solution that will work fairly for both farmers and processors alike.  Farmers must have a seat at the table where their direct input is the priority.
  • Farmers must have the ability to vote on their behalf through an individual ballot (rather than only bloc voting by cooperatives) provided to all farmers during any future Federal Milk Marketing Hearings.
  • It is unacceptable to continue moving down a path where only a few determine milk pricing formula decisions for all by inserting legislation changes without direct input from dairy farmers. What happened in 2018 must never be repeated.
  •  Any milk pricing solution must address the severe financial distress farmers face when processors de-pool large volumes of milk.
  • Farmers deserve transparency on their milk checks. The trust between farmers and processors has been significantly tarnished through de-pooling and this needs to be improved. Farmers should be able to review their milk checks and determine exactly how the price they are paid for their milk reflects the value of the commodity dairy products that are made with that milk.

The American Dairy Coalition represents dairy farmers from across the U.S.