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Five Coops Ask USDA for Emergency Hearing To Boost Class I and II Differentials

Feb 06, 2006

Five Coops Ask USDA for Emergency Hearing To Increase Class I and II Differentials

A number of dairy cooperatives filed a petition last week with the U.S. Department of Agriculture (USDA) requesting that all federal order marketing areas change how Class I and II minimum milk prices are calculated, essentially de-coupling them from Class III and IV prices. Dairy Farmers of America, Inc., Dairylea Cooperative Inc., Southeast Milk Inc., St. Albans Cooperative Creamery, Inc., and Michigan Milk Producers Association are also asking USDA to hold an emergency hearing to consider the petition.

IDFA strongly opposes the proposal and the holding of any hearings, and will send comments to USDA this week stating that position.

The National Milk Producers Federation attempted to make the same de-coupling proposal last week during the Class III and IV make allowance hearings, but the presiding administrative law judge would not allow the testimony on grounds that it went beyond the scope of the hearing.

As was reported in last week's News Update, the National Cheese Institute and several cooperatives proposed at the hearing that USDA update the current make allowances, which could decrease the Class III minimum price by as much as 54 cents per hundredweight, and the Class IV minimum price by as much as 65 cents. Given the current order language, those changes to the Class III and IV make allowances would also flow through to the minimum Class I and II price formulas.

But the new de-coupling petition includes amended order language that would permanently require that the Class I and II minimum price calculations remain based on the current product price formulas, rather than the new formulas that will exist once the Class III and IV make allowances are updated. The proposal would, therefore, fix in the order language the wholesale product prices, make allowances and yield factors as they currently exist in the Class III and IV price formulas for the purpose of calculating the Class I and II minimum prices only.

"This has the effect of changing significantly the relationship between the Class I and II price calculations and those for Class III and IV," said IDFA Chief Economist Bob Yonkers. "Implicitly, this petition has the same impact as raising the Class I and II differentials."

Yonkers said the new petition, if adopted, could increase the Class I differentials and Class II differential by as much as 65 cents per hundredweight in every federal milk marketing area.

"Thus, Class I differentials could increase by as much as 40%, and the Class II differential could increase by almost 100%," he said.

In addition, if adopted, the proposed language would direct this same change in the differentials any time in the future when the Class III and IV price formulas change.

"The impact of such a regulatory change would have far-reaching implications, ranging from hurting demand for Class I and II products to increasing regional differences in producer blend prices," said Yonkers.

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Posted February 6, 2006

Dairy Delivers