Girl pouring milk into glass.
April 29, 2020

USDA Nixes Class I Floor Proposal

 |  By: Jim Dickrell

In a stunningly rapid response, the United States Department of Agriculture (USDA) has nixed a proposal submitted by a number of dairy co-ops and marketing agencies in common to floor the Class I price at $15.68 in June, July and August.

The proposal was submitted Monday by Marvin Beshore and Jason Statler, attorneys for the proponents of the request. This afternoon, USDA Administrator Bruce Summers nixed the idea. His statement reads in part:

“Subsequent to your proposal submission, USDA has been contacted by additional stakeholders who would like to consider other possible solutions. In light of the significant interest in alternative solutions and the temporary nature of your request, USDA would not be able to complete a rulemaking proceeding that allows all industry stakeholders the opportunity to adequately participate and implement the proposal timely. While USDA appreciates the industry’s efforts to develop potential solutions considering the unexpected COVID-19 impacts, USDA is not moving forward with a rulemaking proceeding to consider this proposal.”

The proposal had called for an emergency hearing and rule implementation in time for the June 1 price mover announcement on or before May 23.

Cooperatives and marketing agencies in common operating in 10 of the 11 Federal Milk Marketing Orders had made the request Monday for an emergency hearing to floor the Class I price at $15.68 in June, July and August. The only Federal Order that was 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 earlier 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 all 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.”

MMPA 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.