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USDA Issues Final Rule Implementing Forward Contracting Program

Nov 03, 2008

The U.S. Department of Agriculture last week issued its final rule establishing the Dairy Forward Pricing Program as required by the 2008 farm bill. Effective today, the rule allows handlers operating within federal marketing orders to establish forward contracts with producers or cooperatives for all monthly Class II, III and IV milk purchases. It will apply to milk received by these handlers beginning December 1, 2008.

"Reestablishing the forward contracting program has been one of IDFA's top legislative priorities," said Ruth Saunders, IDFA senior director of policy and legislative affairs. "We compliment the House and Senate agriculture committees, especially Chairmen Collin Peterson (D-MN) and Tom Harkin (D-IA), for supporting the reestablishment of this important risk management tool in the new farm bill and USDA for moving quickly to implement the program."

The provisions of the final rule are similar to the successful Dairy Forward Contracting Pilot Program that was in effect from August 2000 to December 2004. According to USDA, the pilot program substantially reduced price volatility for producers who continued to forward contract through the four-year period.

"It is reasonable to expect a producer to negotiate a forward contract that would approximate the minimum blend price plus applicable premiums averaged over the forward contract period," the final rule states. "Over time, it is reasonable to expect to see forward contract prices paid to producers below the applicable minimum order blend price in some months and above the minimum order blend price in others."

The rule will not change contracts entered into before November 3, 2008, and it only applies to contracts for milk regulated by the Federal Milk Marketing Orders system. No contract may be entered into after September 30, 2012, when the provisions of the 2008 farm bill expire. Also, contracts under this program must not apply to milk received by the handler after September 30, 2015.

Members with questions may contact Saunders at or 202-220-3553, or Bob Yonkers, IDFA vice president and chief economist, at or 202-220-3511.


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