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April 29, 2020

Dairy Groups Call For Flooring Class I Price at $15.68 This Summer

 |  By: Jim Dickrell

Cooperatives and marketing agencies in common operating in 10 of the 11 Federal Milk Marketing Orders have requested an emergency hearing to floor the Class I price at $15.68 in June, July and August. The only Federal Order that is not represented in the request is Federal 124 in the Pacific Northwest. The request for hearing can be found here.

Based on current futures market prices, the projected Class I price June through August would average $11.93/cwt. “This is the lowest price level during the preceding 10-year period of January 2010 through December 2019 and $5.42 less than the average price during this time,” say Marvin Beshore and Jason Statler, attorneys for the proponents of the request.

“The purpose of this proposal is to minimize the destructive impact on the Class I price of the dairy commodities’ price plunge caused by the coronavirus pandemic. While the proposal will not mitigate all the market value loss dairy farms are expected to experience, implementing the temporary Class I price will meaningfully help reduce the overall impact,” write the attorneys.

The attorneys note that proposed $15.68/cwt floor would still be below 10-year Class I average of $17.53. But it is unclear in the proposal why $15.68 was selected as the proposed price floor.

Approximately 28% of U.S. milk production is utilized as Class I, though utilization rates vary from less than 10% in the Upper Midwest to more than 80% in Florida. And therein lies a potential problem since dairy farmers’ benefits under the proposal would vary widely depending on where they are located.

The Minnesota Milk Producers Association (MMPA) issued a statement today, claiming such harm: “While raising the Class I price would help those in Class I (fluid milk) areas, those farms without most of their milk in Class I would be left behind. While we al want higher milk prices, but arbitrarily bumping prices to a made-up number could cause more harm than good. People buying milk, both at the processing plant and at the store, may simply decide they no longer need it.”

MPPA also raised concerns the proposal could affect liquidity at the Chicago Mercantile Exchange, change indemnity payments under the Dairy Margin Coverage program along with other unintended consequences.