This was the third week of the Federal Milk Marketing Order hearing in Carmel, Indiana. The week started out with rebuttal testimony on the National Milk Producers Federation (NMPF) proposal to eliminate barrel cheddar cheese from USDA’s National Dairy Products Sales Report (NDPSR), which is the price discovery component of the FMMO minimum milk pricing formulas. There was quite a bit of opposition to removing cheddar barrels, the price of which began to significantly deviate from the 40-pound cheddar block price in 2017. NMPF estimates that the lower barrel price in the formulas cost producers about $2 billion in reduced income over the past six years (see last week’s article for table). However, there was testimony that the market has begun to adjust with several barrel manufacturers putting in the equipment to switch to blocks and several new cheddar block plants in construction due to be commissioned in 2024/2025, making it a possibility that the future block/barrel prices might invert with barrel being higher.
On Wednesday, Dr. Marin Bozic, representing the Edge Cooperative in the Midwest, offered a modified proposal on the topic that he characterized as a “natural outgrowth” of the discussion held in the hearing on this issue. His testimony, which you can read here, outlines a compromise proposal that would keep the barrels in the formula but reduce their weight to a percentage that more closely aligns with the percentage of cheddar cheese that is barrels. Estimates of cheddar cheese production put the actual percentage of barrels in the total cheddar category at around 30%, but because a lot of the other cheddar is not reportable as part of the NDPSR (because it is in a bigger or smaller package, or aged etc.), the barrel weight in the formula is currently about 52%. The Edge proposal was politely received as no one has had a chance to evaluate it. But apparently a new proposal that is a “natural outgrowth” of hearing discussions on existing proposals can be considered.
There are proposals to add 640-pound blocks of cheddar cheese to the NDPSR. This was mostly opposed by witnesses. The proposal to add unsalted bulk butter to the NDPSR also attracted opposition. The proposal to add mozzarella cheese to the NDPSR was almost universally opposed, often because of the practical reality that there is no standard size or universally accepted manufacturing cost and yield data.
Late on Wednesday the hearing moved to issue #3, the make allowance. The NMPF economist laid out the changes to the current make allowances that NMPF is proposing. It amounts to about a 50-cent increase in the make allowances for both Class III and Class IV. Any increase in the make allowance is a corresponding decrease in the producer price. NMPF explained the procedure they used as an organization to balance the concerns of their members who own processing plants, which is most of them, and the producers who own the cooperatives. The attorney for the International Dairy Foods Association (IDFA) began his cross-examination of the NMPF witness by going through a list of factors where NMPF and IDFA agree with regards to make allowances. Both agree they need to be raised. Both agree there needs to be mandatory and audited manufacturing cost studies conducted by USDA in the future and that USDA currently lacks the legal authority to do that. Both agree that Congress should give USDA that authority in the upcoming Farm Bill. But despite this agreement there is a significant difference between IDFA and NMPF on what the level of the make allowance should be as a result of this hearing. IDFA wants to raise the make allowance in four annual increments with the initial increase being slightly higher than NMPF, but then having the make allowance automatically increase each year for the following three years to an end point where make allowances for Class III would increase in the range of $1.50 per cwt. and $1.35 for class IV. The testimony on make allowances should continue well into next week.
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