Guest editorial: S-1640 pricing formula explained
By Arden Tewksbury, Manager, Pro-Ag
Several dairy farmers called me after many of the news media printed our recent editorial. Basically they wanted to know two things: Is it possible for dairy farmers to receive a price of $24.00/cwt.? The second question is, how do we receive $24.00/cwt.?
The answer is simple, but difficult to obtain. Have our federal legislators pass the Federal Milk Marketing Improvement Act (S-1640), and you will have an opportunity to receive the $24.00/cwt.
Since order reform came into existence on Jan. 1, 2000, the price dairy farmers received for their milk exceeded $20.00/cwt. only 18 months out of 146 months. (This doesn’t include March of 2012). Of course, this means the price that dairy farmers received was below $20.00/cwt. for 128 months since Jan. 1, 2000. Also figures indicate that during the same period only 5 times did the pay price range between $19-$20/cwt. and only 9 times did the pay price range between $18-$19/cwt. 84 months the pay price was under $16/cwt. (This same disparity would be true in all federal milk orders. The rate might change slightly.)
What can be done about these inadequate prices to dairy farmers? We need to pass S-1640.
The USDA is expected to announce on May 1 the national average cost of producing milk for 2011 at a figure over $23/cwt. Unfortunately this cost of $23 will not factor in the prices that dairy farmers currently receive for their milk.
So what price would S-1640 return to dairy farmers? In federal order #1, if the national average cost of production is $23/cwt., then the Class II milk would be $23cwt. (Class II would consist of all milk used to manufacture dairy products).
In order #1, the Class I price would be $26.25/cwt. Using a 43% Class I utilization these class prices would return a price of approximately $24.40/cwt. In federal order 30 (the Midwest Chicago order) the value of Class II milk would be $23/cwt. S-1640 uses the current Class I differential of $1.80/cwt. This means the Class I price would be $24.80/cwt. Using a Class I utilization of 16%, these Class figures would return a price of approximately $23.28/cwt. This price would be approximately $1.12/cwt. less than the pay price in order #1. However, the dairy farmers’ cost of production is lower in order #30 than the dairy farmers’ cost of production in order #1; consequently this would leave the bottom line very comparable to producers in order #30 with dairy farmers in order #1.
I can’t see where any other dairy proposal will return an adequate price to dairy farmers even with government subsidies. Remember, S-1640 is not geared to cost the U.S. government any funds!