Evaluating the Implications of the USDA AMS Final Decision on Federal Milk Marketing Orders (FMMOs)

Key Changes between Recommended FMMO Decision and Final Decision

• Faster Implementation: Revised skim milk composition factors will be implemented within six months instead of 12.
• Marketing Cost Factor: A $0.0015 marketing cost factor will be added to all make allowances.
• Nonfat Dry Milk Methodology: Changes to the calculation of the nonfat dry milk make allowance.
• Class I Differentials: Modifications to certain county-specific Class I differentials.

Eligible producers, whose milk was pooled on an FMMO in January 2024, can vote on the proposed amendments. Ballots, mailed by AMS, must be postmarked by December 31, 2024, and received by January 15, 2025, to be counted.

The decision builds upon a recommendation issued in July 2024, following a public comment period that concluded in September 2024. AMS reviewed 128 comments to refine the amendments included in the final decision.

For more information, visit the AMS hearing website or contact USDA/AMS/Dairy Program at fmmohearing@usda.gov. Copies of the hearing record and details on the referendum process are also available.

Summary of Final Decision and Differences Between the Final and Recommended Decisions

Final Decision

The decision’s goal is to align pricing with current market conditions and ensure fairer representation of production costs and composition levels.

The Final Decision regarding the amendments to Federal Milk Marketing Orders (FMMOs) made the following determinations:

1. Milk Composition Factors: Updated to reflect current production levels: 3.3% true protein, 6.0% other solids, and 9.3% nonfat solids.
2. Surveyed Commodity Products: Removed 500-pound barrel cheddar cheese from the Dairy Products Mandatory Reporting Program (DPMRP) survey, retaining only 40-pound block cheddar cheese prices.
3. Class III and Class IV Formula Factors: Updated manufacturing allowances to $0.2519 for cheese, $0.2272 for butter, $0.2393 for nonfat dry milk (NFDM), and $0.2668 for dry whey. Adjusted the butterfat recovery factor to 91%.
4. Base Class I Skim Milk Price: Reinstated the “higher-of” pricing mechanism for Class I skim milk prices, replacing the 2018 “average-of” system. Introduced a rolling adjustment for extended shelf life (ESL) products.
5. Class I and Class II Differentials: Retained the $1.60 base differential while adjusting location-specific values to reflect modern market conditions.

Differences from the Recommended Decision

1. Manufacturing Allowances: The recommended decision proposed slightly lower make allowances ($0.2504 for cheese, $0.2257 for butter, $0.2268 for NFDM, and $0.2653 for dry whey). The Final Decision marginally increased these values.
2. Implementation of Milk Composition Standards: The Final Decision emphasizes immediate updates to composition standards without the annual update provision proposed in one alternative.
3. Class I Pricing Mechanism: Both decisions restored the “higher-of” calculation but added a refined rolling adjustment mechanism for ESL products in the Final Decision.
4. Stakeholder Feedback: The Final Decision included revisions reflecting additional stakeholder testimony and economic impact analysis.

General differences between the recommended decision and the final decision

Category	Recommended Decision	Final Decision
Manufacturing Allowances	Cheese: $0.2504; Butter: $0.2257; NFDM: $0.2268; Dry Whey: $0.2653	Cheese: $0.2519; Butter: $0.2272; NFDM: $0.2393; Dry Whey: $0.2668
Milk Composition Standards	Proposed annual updates to milk composition standards using previous year’s weighted averages.	Updated milk composition standards immediately; no annual updates included.
Class I Pricing Mechanism	Restored the “higher-of” pricing system for Class I skim milk.	Same as Recommended Decision, but added rolling adjustment for ESL products.
Stakeholder Feedback Integration	Based on hearings and testimonies up to the draft stage.	Reflected additional stakeholder testimony and economic analysis for broader acceptance.

A detailed comparison of current FMMO pricing provisions and final rule changes

Milk Pricing Category	Changes in the Final Decision	Current FMMO Pricing Provisions
Milk Composition Factors	– Adjust composition factors to 3.3% true protein, 6% other solids, and 9.3% nonfat solids.	FMMO milk pricing is based on protein, other solids, and nonfat solids. Current formulas use 3.1% protein, 5.9% other solids, and 9% nonfat solids, reflecting component test trends.
	– Modify implementation lag from 12 months to 6 months.
Surveyed Commodity Products	– Eliminate the use of 500-pound barrel cheddar cheese prices in formula calculations.	Utilizes USDA survey data of 40-pound block and 500-pound barrel cheese to calculate Class III and IV milk prices.
	– Use only the 40-pound block cheddar price to determine monthly average cheese prices.
Class III and Class IV Formula Factors	– Update manufacturing (“make”) allowances:	Current make allowances (last updated in 2008):
	– Cheese: $0.2519 (up from $0.2504).	– Cheese: $0.2003
	– Butter: $0.2272 (up from $0.2257).	– Butter: $0.1715
	– Nonfat Dry Milk: $0.2393 (up from $0.2268).	– Nonfat Dry Milk: $0.1678
	– Dry Whey: $0.2668 (up from $0.2653).	– Dry Whey: $0.1991
	– Retain current butterfat recovery factor of 91%.	The butterfat recovery factor is set at 90% since 2000.
Base Class I Skim Milk Price (Class I Mover)	– Modify Class I skim milk pricing formula:	The Class I mover is based on the average of Class III or Class IV skim milk prices plus $0.74/cwt.
	– Return to the higher of advanced Class III or IV skim prices, plus an extended shelf-life (ESL)
	– Implement a 24-month rolling average adjuster with a 12-month lag for ESL
Class I and Class II Differentials	– Maintain a $1.60 base differential for Class I and include adjustments for location-specific differentials.	FMMO Class I pricing includes a $1.60 base differential plus adjustments based on geographic location, updated since 2008 in some Southeastern states.