Recorded December 3, 2008
By Ruth Saunders, IDFA Senior Director of Policy and Legislative Affairs
Thanks to efforts by all parts of the dairy industry in the new farm bill, forward contracting has once again become available as an option to stabilize prices. The U.S. Department of Agriculture passed the necessary regulation to go into effect this month.
Based on the successful Dairy Forward Contracting Pilot Program that was in effect from August 2000 to December 2004, this new 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 is a completely voluntary option and applies to milk received by these handlers beginning December 1, 2008.
The Federal Milk Marketing Order administrators will coordinate the program. Forward contracts must be signed and dated by the contracting handler and the producer or cooperative association prior to the first day of the first month for which they become effective. A copy of the signed contract, with an attached signed disclosure statement, must be received by the FMMO administrator from the handler.
Based on the pilot program and its projections, USDA says that over time a producer can expect to see forward contract prices that are above and below the applicable minimum order blend price. The goal is price stability, so that both buyers and sellers will know in advance exactly what the price of their milk will be.
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