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IDFA Submits Comments to USDA on Class III/IV Price Formulas

Oct 10, 2006

IDFA Submits Comments to USDA on Class III/IV Price Formulas

When the U.S. Department of Agriculture (USDA) announced plans earlier this summer to reconvene the national hearing on make allowances, the department also solicited additional proposals regarding possible changes to other components of the Class III and Class IV pricing formulas. In response, IDFA recently submitted comments calling for an adjustment to the protein price formula for Class III milk and the elimination of the existing price adjustment for cheddar cheese in barrels.

"IDFA believes that the current protein price formula is based on assumptions that are inconsistent with government regulations, production technology and the reality of the marketplace," said Bob Yonkers, IDFA's chief economist. "We urge USDA to adjust the formulas to reflect actual manufacturing realities."

In its comments, IDFA calls for an adjustment to the price formula for Class III milk to reflect the lower value and reduced volume of butterfat that is recoverable as whey cream.

"USDA's quality standards prohibit whey cream from being used to produce USDA Grade AA butter," the comments state, adding that the market value of whey cream is much lower than the value of sweet cream, which is used in Grade AA butter. "Therefore, the federal orders are improperly pricing the value of butterfat in whey cream by pricing it based on the value of Grade AA butter."

IDFA also urged USDA to eliminate the three-cent per pound adjustment that currently is added to the monthly average price for cheddar cheese in 500-pound barrels.

"The three-cent addition was not based on actual industry cost differences," said Yonkers. "However, updated make allowance data presented at the reconvened hearing came from a survey of plants which included both package types. Therefore, any differences in costs of processing will be accounted for in the updated make allowances, making the three-cent per pound adjustment duplicative."

The deadline for submitting proposals was September 30. USDA plans to hold an information session on the proposals after they have been analyzed by the department.

To read IDFA's comments, click here.

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Posted October 10, 2006

Dairy Delivers