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New price formula leads to $400 million Class I milk losses

A new analysis by the American Farm Bureau Federation finds changes in the 2018 Farm Bill on how the price of milk is calculated is costing dairy farmers millions.

For almost 20 years, Farm Bureau says the price for Class I milk, or the milk used to produce beverage milk products, was based on the higher-of the advanced Class III and Class IV skim milk price. Class III milk is used to produce cheese and Class IV milk is used to produce nonfat dry milk powders. It allowed fluid milk processors to know milk procurement costs in advance.

The 2018 farm bill eliminated the higher-of component in the price formula and replaced it with a formula based on the simple average of prices plus 74 cents which was intended to improve risk management options for Class I milk. 

As a result, Farm Bureau says anytime the spread is wider than $1.48 per hundredweight, dairy farmers receive a lower Class I milk price than with the previous formulation.  Since the hit of COVID-19, rapid volatility within the markets has amplified the impact of the formula change.

Analysts estimate the value of Class I milk under the new formula is more than $400 million lower from May to October.

The rule change is effective until April 2021 and Farm Bureau is advocating farmers receive a modified bloc vote for a voice on the matter.