Marketing order formula means many class III milk producers won’t see big milk checks

An ag economist says the high Class Three milk prices have created an unusual problem leading to lower milk checks for producers.  John Newton with American Farm Bureau says producer price differentials or PPD’s have gone negative because Class Three manufacturing milk is currently priced higher than Class One fluid milk and it is part of the Federal Milk Marketing Order accounting rules. Newton tells Brownfield, “The classified value of the milk in the pool is not enough to pay the minimum producer value, so they have to reduce the minimum producer value so you’ve got enough money in the pool to cover it.”

John Newton

Newton says to correct this, the Class One milk price has to get above the component value of the milk, and that might take three months or more to happen. “We’ve seen cheese prices more than double and so you had low Class I prices and very rapid increases in cheese pricing and Class III prices. That’s what creates this kind of upside-down scenario that we find ourselves in.”

Dairy producers have seen Class Three milk in the 21-to-22 dollar a hundredweight range lately but have also seen PPD deductions from six to eight dollars a hundredweight.  Newton says that’s a loss dairy producers can’t cover with most risk management tools. “It effectively increases your basis risk, and that’s risk that you can’t cover so it makes it even more financially difficult for producers out there.”

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