Changes to Federal Order Pricing Rules May Lower 2007 Milk Prices

Dr. Cameron Thraen, Milk Marketing Specialist, The Ohio State University, Additional milk marketing information by Dr. Thraen

On November 20, 2006, the United States Department of Agriculture, Agricultural Marketing Service, Federal Order Branch, announced changes to the Class IV and Class III pricing rules. These changes are to the make allowance values, i.e., those values, expressed on a dairy product pound basis, which processors are allowed to deduct before arriving at the fat, protein, other solids and skim solids values to be paid to producers. You can access the complete Federal Order decision document at:

I have posted a copy of the expected price impacts by components and milk class on my Ohio Dairy 2006 website at this address: . The bottom line is that milk producers will begin receiving less value for their milk as early as February 2007, or possibly March 2007. A positive referendum will require a 2/3 majority of producers voting individually or block voted by their cooperative association to approve the changes. Remember, that as stipulated under Federal Order procedural rules, the vote is to approve the new language authorizing the increased make allowance values. A 'no' vote is a vote to terminate your Federal Order. Not a small matter to consider.

Looking ahead, the time-line for implementation on this decision is:

November 22, 2006: Federal Register publication of the Tentative Final Decision (TFD) is adopted on an Interim Final and emergency basis. The 60-day comment period started on November 22, 2006 and runs to January 22, 2007. With the finding of an emergency basis, there will be a referendum concluded no later than 30 days from November 22, 2006, which was December 21, 2006. On December 22, a producer YES or NO vote is recorded. If the TFD is approved, then sometime shortly after this date, a Interim Final Rule(IFR) will be issued and the make allowance changes can go into effect for as early as February or March 2007. After the comment period closes on January 22, 2007, the comments will be reviewed and a Final Decision will be issued. This will be followed by a second referendum and the issuance of a Final Rule.

There are two very important items on the Federal Order agenda. On December 5, 2006 in Washington DC, the USDA held an information program on the issue of class pricing rules and proposals it has received for more changes to these pricing rules. Also scheduled for December 11, 2006 in Pittsburgh, PA, there was begun a national hearing on proposals to change Class I and Class II pricing rules. If you would like more information on these hearings, contact your Federal Market Administrator at 330-225-4758.