The National Milk Producers Federation (NMPF) on Jan. 11 called for changes to the so-called Class I fluid milk price mover to recover losses dairy producers have faced from the extreme price disruptions caused by the coronavirus pandemic, part of a suite of policies essential to advancing the well-being of dairy farmers and the entire industry in response to challenges brought to light by the COVID-19 pandemic.
“We are seeking consensus across the dairy industry for changes to the Class I mover that remedy economic damage to dairy farmers who have disproportionately suffered as a result of this pandemic,” said Jim Mulhern, President and CEO of NMPF, after a meeting of NMPF’s Executive Committee that discussed policy approaches. “The intent behind the current mover was a revenue-neutral solution to the concerns of fluid milk processors about hedging their price risk. With that balance severely upended due to the pandemic, a modified approach is necessary. We need a solution that provides more equity and balance between farmers and processors.”
The current Class I mover used to price fluid milk in federal milk marketing orders took effect in 2019. It applies a $0.74/cwt adjuster to the monthly average of Class III and IV prices. That replaced the previous Class I formula, which was based on either the Class III or IV price each month, whichever was higher – an approach that worked for farmers but made it more difficult for fluid milk handlers to hedge milk prices using the futures market. The 2019 change was intended to be revenue-neutral and was widely supported across dairy when it was implemented. But the significant gap between Class III and IV prices that has developed during the pandemic has exposed dairy farmers to asymmetrical losses not experienced by processors.
Dairy farmers may lose roughly $800 million in revenues under the current Class I mover, making its re-examination necessary.
The Executive Committee also supported a motion directing the organization to explore, with other industry stakeholders, updates to the pricing formula that better protect dairy producers. The committee also discussed other dairy-pricing improvements as part of an ongoing in-depth NMPF examination of important issues related to Federal Milk Marketing Orders. NMPF leadership directed staff to convene NMPF’s Cheese Pricing Task Force to further refine proposals involving both public and private sector organizations that could help address ongoing imbalances in the pricing of block and barrel cheese.
“These issues are challenging and complex, but also crucial to face if we are to best promote prosperity among dairy farmers, their cooperatives, and the entire industry,” Mulhern said.