Location Matters! Florida: $25.10/Cwt. - Upper Midwest: $19.89/Cwt.

Producer pricing in the Federal Orders is based on the USDA formulas.  All producers in an Order receive equal payment per cwt. That does not mean that all Federal Orders receive the same payment!   

Producer payment calculations are made in the Federal Orders by long standing formulas.  Once all milk Classes in the Federal Order are priced, each Federal Order then uses a weighted average of the four Classes and payment to all producers is leveled.  The weighted averages, mean that if one Order produced primarily Class I the average would be close to the Class I price.

Currently, due to the USDA formulas, Class III milk is being priced very low.  (See these posts for an explanation of the USDA formulas;  April 3, 2024: March 19, 2024: March 2, 2024)  Therefore, in Federal orders, with a lot of Class III milk, the average price will be close to the Class III average.

Below in Table I, the 11 Federal Order "Uniform" prices (really the averages) are ranked from highest paid to lowest paid.  The difference is HUGE!  These prices are for March 2024 in each Federal Order.  The states paid on the "Advanced" process are in red.

Florida, the Federal Order, with the lowest in butterfat production and the lowest in milk per cow, pays the most per cwt.  By contrast, the Upper Midwest, which has high butterfat production and high milk per cow is the lowest paid per cwt.  Producers in the Upper Midwest get paid 20% less per cwt. for their milk than producers in Florida.

So, bottom line, the Federal Order with the lowest productivity gets the highest prices per cwt.  Is this what the Federal Orders intended?  When producer payments are high, there is little incentive to improve productivity.  When producer payments are low, there is a very strong incentive to improve productivity.  That is how capitalism works.  Is the USDA payment plan defeating the power of capitalism with its pricing process.

(Table I Below was changed from the original version to represent the Uniform price based on component tests, not 3.5% butterfat.)

Table I - March 2024
Uniform Prices

WHAT MAKES THE DIFFERENCE?

Class I milk is formulated to be the highest priced Class.  When the pricing systems were developed, it was done to ensure that drinking milk would be available to all at a reasonable price.  This process was appropriate in the era when the Federal Orders were formed.  Is making sure milk is available for everyone a problem today?  Does it need USDA regulation?

In March 2024, the Class III milk index price was $16.34 per cwt. Class I milk base index price was $18.80 per cwt.  In Class I milk pricing there is an added Class I differential based on location.

Table II ranks the percent of Class I milk by Federal Order.  Florida milk marketing has 82% Class I milk.  The Upper Midwest has only 5.7% Class I milk

Table II - Percent Class I
by Federal Order

Class III rankings (Table III) are almost the exact opposite.  The Upper Midwest is the clear leader with 92% of its milk going to Class III milk for cheese.  The four Federal Orders paid by the "Advanced" process are all at the bottom.

Table III - Percent Class III
by Federal Order

With the origin of Federal Orders, Class I milk had to be Grade A milk.  All other Classes could use Grade B Milk.  Today, virtually all milk produced is Grade A.   Class I milk cannot be de-pooled, but all other Classes can be de-pooled depending on each Federal Order's rules.

SUMMARY

Strangely, none of these issues seem to on the USDA agenda for revisions.  Why should Class I milk be higher priced than other milk of equal quality?   Would producers or grocery stores quit supplying fluid milk for consumption if it was priced similar to other Classes?  If grocers did stop selling fluid milk, shoppers would go to a different store.  Fluid milk today is never delivered to the front porch of homes.  It is in the grocery stores like cheeses and ice cream.  Why is the USDA using the logic from more than half a century ago to price producer milk?