Government's Secret Milk Price Formula Gets Mysterious Update
Published Date: 1/17/2025
Rule
Summary
Starting June 1, 2025, new milk pricing rules will roll out across 11 Northeast and other U.S. milk markets, thanks to a big thumbs-up from local dairy producers. These changes tweak how milk’s value is calculated, focusing on its key parts like protein and solids, aiming for fairer prices. Some updates kick in later on December 1, 2025, so dairy folks should mark their calendars for these money-impacting shifts!
Analyzed Economic Effects
7 provisions identified: 6 benefits, 0 costs, 1 mixed.
Skim Milk Component Factor Increases
Skim milk composition factors used in FMMO formulas increase to 3.30% protein, 6.00% other solids, and 9.30% nonfat solids. These composition factor changes are implemented on December 1, 2025.
Updated Make Allowances & Recovery
Effective June 1, 2025, make allowances in the Class III and IV formulas are updated to: cheese $0.2519, butter $0.2272, nonfat dry milk $0.2393, dry whey $0.2668, and the Class III butterfat recovery factor is set to 91 percent.
Class I Mover Reverts to Higher-of
Beginning June 1, 2025, the base Class I skim milk price mover returns to the 'higher of' the Class III or Class IV skim prices (instead of the 'average of'), and a rolling monthly Class I Extended Shelf Life (ESL) adjustment is adopted using a 24-month rolling average adjuster with a 12-month lag calculated from differences in prior months.
Revised Location-Specific Differentials
The rule retains a $1.60 base Class I differential and adopts modified location-specific Class I differential values (county-level differentials listed in the rule). These modified differentials are implemented on June 1, 2025.
Two-step Effective Dates for Changes
Most pricing formula changes take effect June 1, 2025. Changes to skim milk composition factors (3.3% protein, 6.0% other solids, 9.3% nonfat solids) take effect December 1, 2025.
Dairy Survey: Blocks Replace Barrels
As of June 1, 2025, the Dairy Products Mandatory Reporting Program will stop collecting 500-lb barrel cheddar cheese prices and will rely only on 40-lb block cheddar cheese prices to compute the monthly average cheese price used in Class III formulas.
No New Reporting; Small Business Scope
AMS states the amendments impose no new reporting or recordkeeping requirements and apply identically to all handlers regardless of size. A 'small dairy farm' is defined as having annual gross revenue of $3.75 million or less (about 18.3 million pounds of milk marketed or roughly 780 cows or fewer), and an estimated 89 percent of operations with milk sales are likely small businesses.
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