Dairy Industry's New Dawn: Balancing Reform and Farmer Interests

The U.S. dairy industry is on the cusp of significant changes, as the USDA recently announced a final decision on Federal Milk Marketing Orders (FMMOs) that was approved by dairy farmers and cooperatives across all 11 orders. The American Farm Bureau Federation (AFBF) has been advocating for changes to the FMMOs since 2019, and the recent reforms address several key concerns raised by the organization and the broader dairy industry.

AFBF President Zippy Duvall expressed gratitude for the positive changes, such as the return to the 'higher of' Class I milk formula, increased Class I differentials, improved cheese price discovery, and updated milk composition factors. However, he also highlighted the potential offset of these benefits by large, unjustified increases in make allowances, which could negatively impact dairy farmers' profitability.

The FMMO system relies on fairness and transparency, and without a mandatory, audited survey of processing costs, dairy farmers' checks will be reduced based on flawed and incomplete data. AFBF calls on Congress to help restore the balance of fairness in the federal order system by directing USDA to collect a more accurate survey of processing costs, which will level the playing field for all.



The 'higher of' Class I milk formula, which returns the base Class I skim milk price formula to the higher of the advanced Class III or Class IV skim milk prices for the month, is expected to have a positive impact on dairy farmers' income. This change, along with other reforms, is expected to provide dairy farmers with a more stable and potentially higher milk price.

However, increased make allowances could have both positive and negative consequences on dairy farmers' profitability. While farmers might face temporary price reductions, updating make allowances could help the U.S. dairy industry become more competitive in global markets, leading to increased exports and market access. This could ultimately benefit farmers in the long run. Additionally, updating make allowances could encourage investment in new processing assets, which could lead to increased demand for milk and higher prices for farmers over time.

The updated milk composition factors, which include increasing true protein to 3.3 percent, other solids to 6.0 percent, and nonfat solids to 9.3 percent, will have a significant impact on milk pricing and dairy farmers' revenue. These changes will be implemented with a six-month delayed implementation, starting December 1, 2025. The new composition factors will affect the calculation of milk's value, potentially leading to higher milk prices for dairy farmers. However, the overall impact on dairy farmers' revenue will depend on the specific changes to the make allowances and the extent to which the new composition factors affect milk prices.

In conclusion, the recent reforms to the FMMO system have the potential to significantly impact dairy farmers' profitability. While some changes, such as the 'higher of' Class I milk formula, are expected to have a positive impact, others, such as increased make allowances, could have both positive and negative consequences. Dairy farmers should stay informed about these changes and adapt their business strategies to maximize their revenue in the face of these updates.