The Federal Milk Marketing Order (FMMO) pricing formula hearing was in recess for the Labor Day holiday on Sept. 4, and proposals regarding potential changes to manufacturing allowances (make allowances) were a focus during the remainder of the week.
Several dairy producers traveled to Indiana during the first three weeks of the hearing to testify and share their input on the proposed changes.
“We are amid a once-in-a-generation opportunity to reset the Federal Milk Marketing Order system,” Minnesota dairy producer Steve Schlangen said in his testimony.
Dairy producers Eric Palla from Palla Dairies in New Mexico and Matt Johnson from Providence Dairy Inc. in Georgia also echoed the importance of the hearing process for the dairy industry.
“[This hearing] is significant because the Federal Milk Marketing Order system determines what our pay price is, so it’s important that they keep the dairy farmer in mind when they make any changes,” Palla said in an interview with Progressive Dairy.
Palla and Johnson both said they felt it was important to be at the hearing to testify in person.
“Regardless of which side you come down on with make allowances, we are still a symbiotic marketplace,” Johnson said in an interview with Progressive Dairy. “Dairy farmers can’t exist without processors and processors can’t exist without dairy farmers. Somewhere, we have to meet in the middle so that we are all profitable, and right now, this is the best mechanism for us to do that through a federal order hearing. Everybody can discuss where they stand on the issue, and hopefully the secretary and the USDA will make the right decision.”
In addition to producer testimony, many cooperative representatives also testified on the impact of make allowance changes outlined in the discussed proposals, as well as other proposed changes to the FMMOs. Associated Milk Producers Inc. (AMPI), California Dairies Inc., Dairy Farmers of America (DFA), Foremost Farms, Land O’Lakes, Maryland & Virginia Milk Producers Cooperative Association and Northwest Dairy Association were some of the cooperatives that had staff or producers testifying in person this week.
Schlangen, who is the chairman of the AMPI board of directors, testified on behalf of his cooperative’s dairy farmer-owners in support of updating make allowances to 2022 levels and in opposition to Proposal 3, which would eliminate the cheddar cheese 500-pound barrel price series from the commodity products that are surveyed as part of the Class III protein formula used for setting the minimum Class III milk price.
“As a dairy farmer and owner of eight dairy manufacturing facilities through AMPI, I’ve witnessed the repercussions of outdated make allowances,” Schlangen said. “When underestimating processing costs used to determine federal order milk component values, inaccurate price signals are sent to the marketplace and may lead to the misallocation of capital and resources. Make allowances are important, as they drive all minimum milk prices. The impact of these overvalued minimum prices is drastic. Milk market premiums have been replaced with significant price reblends below regulated minimum prices across much of the country."
Several DFA members testified in support of the five proposals submitted by the National Milk Producers Federation (NMPF), including proposed changes to make allowances. NMPF’s proposals include the following changes:
- Limit the make allowance to NMPF’s proposed levels.
- Return to the "higher of" in the calculation of the Class I mover.
- Eliminate 500-pound barrel cheese pricing from the calculation of the Class III protein price.
- Increase and regularly update skim component tests used to determine the FMMO skim milk price.
- Adopt the NMPF Class I price differential proposal.
Palla was one of several dairy producers testifying during the week who spoke about the many challenges faced on the farm, including “experiencing the worst margins in [his farm’s] history.”
“This has been an extremely challenging year for our dairy farm,” Palla said in his testimony. “Since December 2022, the all-milk price declined by more than seven dollars per hundredweight, which is far less than the over-10-dollars-per-hundredweight decrease in my net pay price over the last 12 months.”
Palla spoke about rising input costs, especially those related to increased feed and labor costs as well as the impacts of “significant inflation.”
“As dairy farmers, we always come up with better, more efficient ways to operate to help overcome some of our cost increases,” Palla said. “However, even with our improvements in efficiencies and cost cutting, it doesn’t go far enough given the current return in the marketplace. All things equal, even a small increase in make allowances will be detrimental to milk prices. I understand that make allowances are an aspect of determining federal order class prices, and from time to time, there’s a regulatory need to adjust it. However, I ask that in doing so, the secretary of agriculture take into account the impact on dairy farm milk prices and, more importantly, the impact on dairy farm profitability.”
Paul Windemuller from Dream Winds Dairy LLC in Michigan also testified in support of NMPF’s five proposals, saying they “address critical issues impacting the dairy industry” that he believes “merit serious consideration.” Additionally, he spoke about rising production costs coupled with decreased pay prices that have “plummeted” by more than $8 per hundredweight over the past 12 months.
“I urge the USDA to carefully consider the impact on dairy farm milk prices and the overall profitability of dairy farms when people make such changes [to make allowances],” Windemuller said in his testimony. “The more modest adjustments to make allowances proposed by NMPF, which amount to about a 50-cents-per-hundredweight reduction in producer pay prices, are reasonable and preferable compared to the much larger increases suggested by the International Dairy Foods Association and the Wisconsin Cheese Manufacturers Association. The larger make allowance increase would jeopardize the viability of our family farm.”
Johnson agreed that larger increases to make allowances would also have a detrimental effect on his family’s farm.
“NMPF has proposed a more moderate and modest change to make allowances, which are projected to lower farm milk prices by about 50 cents per hundredweight,” Johnson said in his testimony. “While that level of price decrease is troublesome and concerning, we can live with that change. The much larger increases to make allowances as proposed by IDFA and the Wisconsin Cheese Manufacturers Association would crush my farm’s profitability and should be rejected. Cheese manufacturers have the opportunity to pass on higher manufacturing costs when they sell cheese.”
He added that “because dairy manufacturers have other means of passing along their costs, there is no need to place a large burden on dairy farmers with large make allowance increases.”
Virtual testimony
In addition to the dairy producers and industry representatives testifying in person, seven dairy producers testified virtually on Friday, Sept. 8.
In her testimony, LeAnna Compagna, an Organic Valley member from Vermont, expressed concerns over potential increased FMMO pool obligations.
“This will compete with my co-op’s ability to maintain a high, stable pay price and therefore our ability to invest in our farms,” Compagna said. “Greater pooling costs would be one more squeeze out of our cooperative’s profit margins and could potentially undermine the ability to take on smaller farms.”
Missouri dairy producer Sean Cornelius testified on behalf of DFA in support of the NMPF proposals to amend the FMMO, including reverting the Class I mover back to the "higher of" Class III and Class IV, a moderate update to make allowances, improving the Class I differential and updating component factors.
“During the 2018 Farm Bill, the dairy industry came together in an attempt to support Class I processors to back a change to the Class I skim formula from the higher of Class III and Class IV to an average of Class III and Class IV plus 74 cents per hundredweight,” Cornelius said in his testimony. “At the time, the market projected the impact to milk prices would either be net neutral or net positive. However, over four years later, we know that unfortunately that is not the case. According to NMPF, from July through December 2020, dairy farmers' Federal Milk Marketing Order revenue was reduced by 753.8 million dollars due to the average of plus instead of the higher of.”
He said that while the disparity between the higher of and average of is often blamed on the COVID-19 pandemic, the negative effects of this change have extended past the pandemic time frame.
“Between January 2021 and July 2023, the average of plus was less than its higher of counterpart in 18 of 31 months, which resulted in a revenue loss of 226.5 million dollars,” Cornelius added. “About 222 million of the loss occurred since August 2022, or over the last 12 months. Dairy farmers have always operated on extremely tight margins but are currently facing especially struggling times. This is real money in dairy farmer pockets.”
Dairyman Joaquin Contente is a California Dairy Campaign board member and testified in opposition to a make allowance increase and in support of adding mozzarella to the Class III formula to “reflect the value of the cheese market today more accurately.”
“We oppose any increase to the make allowance because it will further reduce milk prices paid to dairy farmers already paid milk prices below production costs,” Contente said in his testimony. “USDA must add mozzarella to the Class III pricing formula so that our end-product pricing system reflects prices sold today. If we are going to use this system for price discovery, the largest category – mozzarella – should no longer be excluded.”
Evan Hillan, a Land O’Lakes member from Wisconsin, testified in support of Proposal 3 to eliminate barrel cheddar cheese from the Class III protein price formula and expressed support for all five proposals set forth by NMPF.
Maryland dairyman Matt Hoff, a member of Maryland & Virginia Milk Producers Cooperative Association, testified in support of the NMPF proposal to “increase the outdated make allowances in the component pricing formulas that have been in place since 2008 and are based on manufacturing cost data from 2006 and 2007.”
Blake Gendebien from New York testified on behalf of Agri-Mark and its 550 dairy farm families in “full support” of NMPF’s proposal for modernization of the FMMO.
Justin Peterson, an Edge Dairy Farmer Cooperative member from Wisconsin, testified in support of Proposals 16 and 17 submitted by Edge to “further enhance a dairy farmer’s ability to effectively manage their price risk.”
Johnson told Progressive Dairy that his advice for dairy producers who may be hesitant to testify – whether virtually or in person – is that it gets easier each time, and nobody is going to “try to trip them up with lots of questions.”
“I keep hearing from Dana Coale and Erin Taylor that USDA wants to hear from the dairy farmers,” Johnson said in an interview with Progressive Dairy. “They want to know how dairy farmers feel about the proposed issues because at the end of the day, the federal orders are designed for the dairy farmers. We’re the only ones that can vote on it, so they want to know what we have to say.”
To read the proposals, view submitted exhibits, sign up for virtual producer testimony and for all other information related to the hearing, visit the hearing website. The hearing is scheduled to conclude on Sept. 30.
