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Yonkers Testifies at USDA Hearing on Price Formulas

Mar 05, 2007

Yonkers Testifies at USDA Hearing on Price Formulas

IDFA Chief Economist Bob Yonkers testified last week at the U.S. Department of Agriculture (USDA) public hearing on proposals to amend the price formulas that determine Class III and Class IV prices in all Federal Milk Marketing Orders. In his testimony, Yonkers voiced IDFA's support for updating make allowances to reflect recent costs-of-processing data published by the California Department of Food and Agriculture (CDFA). He also reinforced IDFA's position on the need to adjust the protein price used to establish Class III milk prices and eliminate the three-cent per pound adjustment for cheddar cheese in 500-pound barrels.

IDFA submitted two of the 18 proposals that USDA received for consideration. Two other proposals were withdrawn before the hearing began. To read IDFA's proposals, click here.

Yonkers began his testimony by providing an overview of the fundamental features of the product price formulas, which he urged USDA to consider when addressing the proposals. He highlighted with examples the current flaws in USDA's pricing calculations.

"[There is a] critical need for a make allowance that covers the total costs of turning raw milk into a finished dairy product," Yonkers said.

Equally important to recognize, he continued, is that higher finished product prices are not the answer, because the federal pricing formulas do not allow make allowances to grow with higher prices.

"All of the finished product price increase gets passed on to the farmer in the form of a higher minimum milk price," Yonkers said. "None of it is available to the handler to make up for the shortfall between the make allowance and the handler's true cost of manufacturing."

In the balance of his testimony, Yonkers provided IDFA's positions on several of the proposals up for consideration, supporting the adoption of three proposals, two of which were submitted by IDFA, and opposing nine other proposals.

Yonkers explained that IDFA does not support reducing the current make allowances by eliminating the use of CDFA data, and it does not support increases in the yield factors used in the product price formulas. IDFA also opposes the proposal that called for automatic monthly updates to the make allowances based on changes in energy costs, as they would complicate the issue of risk management.

The hearing concluded last Friday at noon, and USDA announced that it will reconvene starting on April 9 in Indianapolis, Ind.

To read Yonkers' testimony, click here. For more information, contact Yonkers at or 202-220-3511.

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Posted March 5, 2007

Dairy Delivers