In the letter, producers from across the US ask NMPF and IDFA to work with them to fix what the American Dairy Coalition (ADC) called “the irreparable financial harm producers have suffered and stop the bleeding the current Federal Milk Pricing Formula has caused.”
The ADC said the group of farmers is working on suitable and fair solutions and is asking for a meeting with NMPF and IDFA leadership so this issue can be discussed further and resolved.
The letter thanks the NMPF and IDFA for their willingness to pursue changes to the Class I price mover.
“This effort is a commendable response to the disastrous effects of negative producer price differentials (PPDs) which based on data from USDA’s Agricultural Marketing Service represented a $2.7bn shortfall in Federal Milk Marketing Order component pricing revenue sharing pools,” the letter said.
In 2019, the Federal Milk Marketing Order’s Class I fluid milk pricing formula applied a $0.74/cwt differential to the monthly average of the advanced Class III and IV skim prices. This replaced the previous Class I formula, which was calculated based on the higher-of the advanced Class III or IV skim price.
The letter said the closing of schools and restaurants early last year, and the subsequent federal response coinciding with the reopening of restaurants across the country, inflated the Class III and cheese prices.
“While Class III rose significantly, we did not see the same impact on Class IV milk values. Processors with the ability to depool their milk opted out of the order, thus benefiting themselves. Meanwhile, dairy farmers shipping to regulated plants faced significant deductions on their milk checks via PPDs because of processors who opted out of the pool,” the letter continued.
“This massive volume of depooling decreased dairy processor costs and increased their bottom-lines at the expense of dairy farmers. Additionally, farmers who chose to purchase risk management tools were unexpectedly unable to utilize them and suffered significant losses. Making matters even worse, this pricing formula pitted farmers against one another due to the unfair inequalities between neighboring producers and across different regions of the U.S.”
The letter said this is “an unethical situation” where processors got to choose what to pay dairy farmers.
“Farmers deserve full transparency from their processors and a seat at the table to negotiate pricing and federal orders going forward,” the farmers stated in the letter.
“We respectfully ask NMPF and IDFA to allow us a seat at the table for a more balanced voice of dairy farmers. As we move together to find a solution and fix the current pricing formula, it is critical that outcomes are fair and equitable to farmers from all regions of the U.S.
“We are not opposed to processors making a profit and protecting their risks– except when there are loopholes that have such a devastating impact on farmers through massive milk check deductions, while simultaneously removing our risk management tools.”
It continued, “We believe a dangerous precedent has been set, and we have concerns with circumventing the Federal Milk Marketing Order hearing process by way of legislation. The current legislative approach lacks transparency for individual farmers and leaves this seemingly secretive milk pricing decision-making in the hands of legislators and a small number of representative voices. Furthermore, the decisions affecting milk pricing should be made by those most impacted by the outcome of the decision-making process, and not by those who stand to benefit from loopholes.”
The letter said the farmers believe an expedited FMMO hearing should be requested immediately, along with an immediate solution to address what it said are the negative PPDs being passed onto farmers. The FMMO hearing process allows inclusive participation where all farmers can bring their ideas forward and be heard on the record.