The Uniform Price

What is the "Uniform" price for producer milk?  The Uniform Milk Price is the weighted average price of all producer milk used in all classes, sometimes referred to as the "Blend" Price.  It is an index calculated for each Federal Order.  It is like the announced index prices for Class I, II, III, and IV which are standardized prices.  The difference is that the "Uniform" price is calculated for each Federal Order and each Federal Order has a different value.  

The Class III price that is announced each month is an index.  No one is really paid this specific amount for milk going to cheese.  Producers are paid initially by the amount of butterfat, milk protein, and other solids.   The standardized Class III price is based on milk with 3.5 percent butterfat, 3.0 percent milk protein, and 5.7 percent other solids.  Similarly, the Uniform price is based on the Class III price plus the Producer Price Differential at 3.5 percent butterfat for a specific Federal Order.  The Uniform price is an index to measure the standard value of milk paid in a specific Federal Order.

As an example, in August 2019 the Uniform price based on 3.5 percent butterfat and 3.0 percent protein for California was $17.84 per cwt.  If the Uniform price had been based on actual component levels, the Uniform price would be $18.62 per cwt.  Component levels have been steadily increasing.

What makes the Uniform price different between Federal Orders?  As covered in the prior post, the mix of milk Classes in each order will provide a different average value.  More Class I milk brings higher Uniform prices.  Also, significant de-pooling in the Federal Orders will significantly change the Uniform price.

Below is a table of the 2021 YTD through October Uniform prices for each Federal Order.  They are ranked highest to lowest.  Florida is always the highest because they are almost exclusively Class I milk.  California is at the bottom of the list due to their large amount of Class IV milk.

Table I - Uniform prices for 2021 YTD

Below are charts for the same Federal Orders used in the prior post for Producer Price Differentials.  They are shown in order of their 2021 Uniform price.  

Chart I displays the Northeast Federal Order which has a balanced mix of all classes of milk and minimal de-pooling.  The spread is $3.63 per cwt. with a high in December 2019 of $19.28 per cwt. to a low of $15.66 per cwt. in June 2020.  The Northeast Order spread is the lowest of the four Federal Orders covered below.

Chart I - Uniform Prices for the Northeast Federal Order

The Southwest Federal Order, Chart II, has a spread from high to low of $5.68 per cwt.  The lowest price was $13.01 per cwt. which occurred in May 2020.  In May, only 5 percent of the milk was Class III milk due to significant de-pooling.  When high paid milk is de-pooled, the remaining milk in the Federal Order will average lower prices. 

Chart II - Uniform Prices for the Upper Midwest Federal Order

The Uniform price in the Upper Midwest, Chart III, has a spread of $7.20 per cwt. which is the largest spread of all the four Federal Orders reviewed here.  The Upper Midwest Federal Order is largely Class III milk for cheese.  In May 2020, the Class III price was $12.14 per cwt.  In July 2020 the Class III price jumped up to $24.54.  The huge volatility was due to cheese price fluctuations caused by COVID "stay as home" mandates. 

Chart III - Uniform Prices for the Upper Midwest Federal Order 

California milk prices had a $5.89 per cwt. spread.  August of 2019 reached a high of $17.84 per cwt.  despite significant de-pooling of Class III milk.   May 2020 was the lowest at $11.95 per cwt.  The huge amount of low-priced Class IV milk has kept California's Uniform price low.

Chart IV - Uniform Prices for California Federal Order

What does all this mean?  The math and policies of Federal Order milk payments are causing huge differences in milk payments. The payment a producer receives for his milk in a Federal Order is controlled by these variables.

1. Producers in the Class and Component system are initially paid based on the components in their delivered milk.   Component levels were reviewed in this recent post.  The producer does have control over his component levels.  But the following three variables are not under a producer's control.
2. The price of each component in a producer's milk is determined by Agricultural Marketing Service and they are based on the values of cheese, NDM, butter, and dry whey.  The price of the commodities used to price components is based on supply and demand.  The linkage between commodities and component prices was covered in this recent post.  
3. The amount of de-pooling in a Federal Orders is managed by the cooperatives, handlers and the specific de-pooling rules of each specific Federal Order.  De-pooling has been huge as covered in this recent post.  When the Class III prices are high, much of the milk is de-pooled to avoid a negative PPD.  This will lower the revenue for those producers left in the Federal Order pool.
4. The mix of milk classes varies significantly in the Federal Orders.  See this post on the impact of various milk classes in the different Federal Orders.

Is this really the way a producer should be paid for his milk?  The March post to this blog discussed some alternatives.  Questions have also been raised concerning the value of even having Federal Orders.

This will be the last post for 2021, but more will be coming 2022.  Enjoy the holidays.