The Dairy Forward Pricing Program: Legislative History, Program Mechanics, and Authorization Status

Introduction

The Dairy Forward Pricing Program (DFPP) is a voluntary federal risk-management tool that authorizes milk handlers regulated under Federal Milk Marketing Orders (FMMOs) to enter forward price contracts with milk producers or their cooperative associations. Under such a contract, the negotiated price may fall below the Federal order minimum blend price. This minimum price exemption is not otherwise available to proprietary handlers for pooled milk. The program’s purpose is to let both parties reduce price-volatility exposure by fixing a price for a future delivery of milk.

Congress authorized a temporary dairy forward pricing pilot program in November 1999, and that pilot took effect in July 2000 under section 23 of the Agricultural Adjustment Act. The Food, Conservation, and Energy Act of 2008 (the 2008 Farm Bill) later established the current DFPP as a separately codified program, and it has since been extended through successive farm bills and appropriations measures. The program has always carried an expiration date, and Congress has repeatedly reauthorized it rather than making it permanent. Its statutory authority has never been allowed to expire outright. Each recent extension was enacted with a retroactivity clause that bridges the gap to the prior authorization. What periodically lapses is the program’s minimum price exemption. Parties remain free to enter forward contracts at any time, but when the program’s authority is not in effect, a proprietary handler establishing a new forward contract is not exempt from paying Federal order minimum prices on that milk. Because that exemption is the program’s entire reason for being, new program contracts are not entered during a lapse, even though contracting itself is never prohibited. Two such lapses occurred in federal fiscal years 2025 and 2026.

This article reviews the DFPP across five areas:

1. The economic rationale for forward contracting in dairy markets;
2. Program mechanics and the regulatory framework;
3. The full legislative and reauthorization record, including the distinction between statutory authority and the program’s operating exemption;
4. Empirical evidence from the program’s 2000–2004 pilot, drawing on the complete pilot dataset; and
5. Practical implications for producers and handlers, including the program’s place within the broader dairy risk-management toolkit.

Economic Rationale for Forward Contracting in Dairy Markets

Federal order milk prices vary substantially within and across years, driven by cyclical swings in milk supply, input costs, domestic and export demand, and the surveyed commodity prices that feed the federal order pricing formulas. Manufacturing-grade milk values, anchored by the Class III and Class IV formulas, routinely move by several dollars per hundredweight (cwt) over the course of a year. During the program’s 2000–2002 pilot study window, for example, the federal order minimum blend price applicable to contracting plants ranged from roughly $11 to nearly $17/cwt within a single 19-month span (USDA AMS, 2002).

Forward price contracts address this volatility by letting buyer and seller agree in advance on the price for future deliveries. For a producer, a forward contract converts an uncertain future price into a known payment, smoothing cash flow and helping satisfy lender requirements for predictable income. For a handler, a forward contract fixes part of its milk-acquisition cost, supporting longer-term product sales commitments made with greater confidence in input costs. The underlying premise is the standard one for risk management: a risk-averse producer may rationally accept a somewhat lower but stable price in exchange for reduced uncertainty (USDA AMS, 2002).

Before the DFPP, dairy cooperatives could already forward contract with their members, because cooperative payments to members are not subject to Federal order minimum prices. Proprietary handlers could not: they were obligated to pay at least the Federal order minimum blend price on all pooled milk, regardless of any private arrangement. The DFPP was designed to narrow this asymmetry by extending comparable forward-contracting flexibility to proprietary handlers, and in turn to the independent producers who deliver to them.

Program Mechanics and Regulatory Framework

Statutory Basis and Administration

The DFPP is codified at 7 U.S.C. § 8772, within Title 7, Chapter 113 (Agricultural Commodity Support Programs), Subchapter IV (Dairy).¹ It is administered by USDA AMS under implementing regulations at 7 C.F.R. Part 1145, which define program terms, set contract-filing requirements, and specify the authorization window. The current Part 1145 superseded an earlier pilot-era Part 1140 when AMS established the current program in 2008 (USDA AMS, 2008).

Eligible Participants and Eligible Milk

Under 7 C.F.R. § 1145.2, participation is open to (a) milk handlers regulated under an FMMO (including proprietary handlers and cooperative handlers that receive milk from sources other than their own members), and (b) the producers or cooperative associations delivering to those handlers. Cooperatives that receive and pay for milk solely from their own members are not eligible handlers, because their member payments are already outside Federal order minimum pricing.

Eligible milk is the volume equal to the contracting handler’s Class II, III, and IV utilization of producer milk for the month, aggregated across the handler’s plants regulated under the same FMMO. Class I (fluid) milk is expressly excluded; the program reaches only milk destined for manufacturing uses. To avoid having to physically segregate or trace milk, a handler may allocate non-contract receipts to satisfy its Class I obligations. If, in a given month, a handler’s non-fluid volume falls below the contracted quantity and the contract price is below the applicable minimum blend price, the handler must pay the higher minimum blend price on the over-contracted volume (USDA AMS, 2002).

Contract Requirements

The program imposes a small set of specific requirements. Each forward contract must be voluntary for both parties; cover only Class II, III, or IV milk; and include a disclosure statement, within the contract or as a supplement, confirming that the producer understands the voluntary nature of the program and the waiver of minimum-price protection for contract milk. A handler may not condition milk receipt on contract participation, and AMS is directed to investigate complaints of coercion.

Contracts must be signed by both parties before the first day of the first month they are effective, and the signed contract must be received by the Market Administrator before the first of that month in order to be effective for the month.² Contracts lacking a signed disclosure statement are deemed invalid and returned to the handler. Market Administrators review each contract for regulatory compliance but do not enforce its commercial terms between the parties; handlers remain obligated to account to the FMMO pool for the classified use value of all milk received, whether or not it is under contract (USDA AMS, 2008).

Contract Pricing Flexibility

The program does not dictate how a contract price is expressed, provided it is established in advance of delivery. The governing statute and regulations leave the definition of a qualifying contract deliberately broad, so an arrangement need not resemble what the trade commonly calls a forward contract to qualify; the flexibility is intentional, and AMS takes no position on whether any particular contract design serves the parties well. In practice, contracts have been written as a flat price per hundredweight, as a formula referencing the federal order Class III price plus an adjustment, in terms of component prices (protein, butterfat, and other solids), as a cheese-yield value, or as combinations of these. Contract volumes during the pilot ranged from as little as about 10,000 pounds per month to roughly 14 million pounds per month, and durations from a single month to 18 months during the study window, with longer arrangements appearing later in the pilot (USDA AMS, 2002, 2005). Because most contract prices reference the Class III value, a contracting producer still bears the basis between the realized FMMO blend and the Class III price, that is, the producer price differential, so a contract priced “at Class III” does not fix the producer’s effective blend-equivalent return.

Legislative History and Reauthorization Record

The DFPP’s authorizing history spans more than two decades. A recurring feature of the post-2018 period is the distinction between two statutory dates (the last date for entering new contracts and the latest date to which a contract may extend) and between statutory authority and the program’s operating exemption.³ Table 1 summarizes the record.

Table 1. Legislative and reauthorization history of the Dairy Forward Pricing Program

Authorizing measure	Signed / effective	DFPP window
Consolidated Appropriations Act, 2000 (Pub. L. 106-113)	Signed Nov. 29, 1999	Pilot: July 19, 2000 – Dec. 31, 2004
Food, Conservation, and Energy Act of 2008 (Pub. L. 110-246, § 1502)	Signed June 18, 2008; rule eff. Nov. 3, 2008	New contracts through Sept. 30, 2012; expiration by Sept. 30, 2015
American Taxpayer Relief Act of 2012 (Pub. L. 112-240, § 701(a))	Signed Jan. 2, 2013	New contracts through Sept. 30, 2013
Agricultural Act of 2014 (Pub. L. 113-79, § 1424)	Signed Feb. 7, 2014	New contracts through Sept. 30, 2018; expiration by Sept. 30, 2021
Agriculture Improvement Act of 2018 (Pub. L. 115-334, § 1402(a))	Signed Dec. 20, 2018; rule eff. Mar. 4, 2019	New contracts through Sept. 30, 2023; expiration by Sept. 30, 2026
Further Continuing Appropriations and Other Extensions Act, 2024 (Pub. L. 118-22, § 102(c)(2)(C))	Signed Nov. 17, 2023	New contracts through Sept. 30, 2024; expiration by Sept. 30, 2027
Exemption lapse: no new program contracts	Oct. 1, 2024 – Apr. 23, 2025	New contracts lose FMMO-minimum exemption until AMS rule
American Relief Act, 2025 (Pub. L. 118-158, § 4101(c)(4)(B))	Signed Dec. 21, 2024; rule eff. Apr. 24, 2025	New contracts through Sept. 30, 2025; expiration by Sept. 30, 2028
Exemption lapse: no new program contracts	Oct. 1, 2025 – Mar. 1, 2026	New contracts lose FMMO-minimum exemption until AMS rule
Continuing Appropriations … and Extensions Act, 2026 (Pub. L. 119-37, § 5002(a), (c))	Signed Nov. 12, 2025; rule eff. Mar. 2, 2026	New contracts through Sept. 30, 2026; expiration by Sept. 30, 2029

Pilot Program (2000–2004)

A dairy forward pricing pilot program was first authorized by the Consolidated Appropriations Act, 2000 (Pub. L. 106-113, signed November 29, 1999). That measure amended the Agricultural Adjustment Act, reenacted with amendments by the Agricultural Marketing Agreement Act of 1937, to establish a temporary pilot program under which producers and cooperatives could voluntarily enter forward price contracts with handlers, subject to a mandatory disclosure requirement. The pilot was codified at 7 U.S.C. § 627 (section 23 of the Agricultural Adjustment Act) and applied to the pilot alone. The current program, established in 2008, is codified separately at 7 U.S.C. § 8772, so the two are distinct statutory authorities rather than a single continuous one. The statute directed the Secretary to establish the pilot within 90 days of enactment; the implementing rule made it effective July 19, 2000, and the pilot ran through December 31, 2004. Congress directed USDA to study the program and report to the Senate and House Agriculture Committees; that mandate produced the USDA AMS (2002) study and a subsequent complete-period data release (USDA AMS, 2005) that together form the program’s primary empirical record.

The Current Program (2008 Farm Bill)

The Food, Conservation, and Energy Act of 2008 (Pub. L. 110-246, § 1502) established the DFPP at 7 U.S.C. § 8772. AMS issued the implementing rule on October 31, 2008 (73 Fed. Reg. 64,868), effective November 3, 2008, replacing the pilot-era Part 1140 with the current Part 1145. The 2008 Farm Bill set the initial window: new contracts through September 30, 2012, and no contract extending beyond September 30, 2015.

Farm Bill and Appropriations Extensions

The American Taxpayer Relief Act of 2012 (Pub. L. 112-240, § 701(a), signed January 2, 2013) extended new-contract authority through September 30, 2013. The Agricultural Act of 2014 (Pub. L. 113-79, § 1424, signed February 7, 2014) extended it through September 30, 2018, and, at § 1601(c)(2)(A), exempted DFPP implementing rules from the notice-and-comment requirements of the Administrative Procedure Act, the accommodation that allows AMS to issue reauthorization rules without prior notice and comment. The Agriculture Improvement Act of 2018 (Pub. L. 115-334, § 1402(a), signed December 20, 2018) extended new-contract authority through September 30, 2023, and the 2019 implementing rule confirmed the program’s application to the then-newly established California FMMO, bringing coverage to all eleven orders. The Further Continuing Appropriations and Other Extensions Act, 2024 (Pub. L. 118-22, div. B, § 102(c)(2)(C), signed November 17, 2023) carried the program through September 30, 2024 (with contracts permitted to extend through September 30, 2027).

The 2024–2025 and 2025–2026 Exemption Lapses

The program’s exemption first lapsed on October 1, 2024, when no extension was in effect at the start of the fiscal year. The American Relief Act, 2025 (Pub. L. 118-158, div. D, § 4101(c)(4)(B), signed December 21, 2024) restored authority,⁴ and AMS issued an implementing rule on April 23, 2025 (90 Fed. Reg. 16,997; Doc. No. AMS-DA-25-0001), effective April 24, 2025, setting September 30, 2025 as the new-contract deadline and September 30, 2028 as the maximum contract-extension date.⁵ Although statutory authority was made effective “as if enacted on September 30, 2024,” a proprietary handler entering a new contract during the roughly seven months between the September 30, 2024 expiration and the April 24, 2025 effective date would not have been exempt from Federal order minimum prices on that milk. The parties were never barred from contracting; the exemption that makes a program contract worthwhile was simply unavailable.

Availability lapsed a second time on October 1, 2025. The Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (Pub. L. 119-37, div. E, § 5002(a), (c), signed November 12, 2025) extended the program through September 30, 2026, again on an “as if enacted on September 30, 2025” basis. AMS issued the corresponding rule on February 27, 2026 (91 Fed. Reg. 9,703; Doc. No. AMS-DA-25-0782), effective March 2, 2026, and set the maximum contract-extension date at September 30, 2029. The exemption thus lapsed from October 1, 2025 to March 1, 2026. As in the prior episode, existing contracts entered before the lapse continued in force, and the substance of the lapse was that any new forward contract during the window would not have exempted the handler from Federal order minimum prices. The Upper Midwest Market Administrator’s office described the effect to its industry in those terms: proprietary handlers establishing new forward contracts on or after October 1, 2025 would not be exempt from paying minimum Federal order prices, and while all producers remained free to enter forward pricing contracts, such a contract does not exempt a proprietary plant from its obligation to pay Federal order minimum prices on milk pooled on the order (FMMO 30, 2025).

Empirical Evidence from the Pilot Period

Two USDA AMS data products document the pilot. The congressionally mandated study (USDA AMS, 2002) covers the 19 months from September 2000 through March 2002. A later release (USDA AMS, 2005) extends the same series through the program’s actual end on December 31, 2004. The two tell materially different stories, and the longer series is the more representative one. Throughout, the study (“the AMS study”) is the source unless otherwise noted.

Participation

Over the full pilot, 2,004 producers entered contracts at some point; over the narrower 19-month study window the count was 1,447 producers and 22 handlers.⁶ Participation was always thin in aggregate: on a monthly-average basis during the study window, contracting producers were about 3.9% of eligible producers and roughly 1% of all producers pooled on FMMOs, and contract milk was about 1.3% of all pooled milk. Eligible producers, primarily independent producers paid directly by proprietary handlers, were about 25% of pooled producers. Monthly participation peaked in April 2001 at 1,141 producers, when contract prices looked attractive relative to forecasts.

Activity was heavily concentrated. Across the full pilot, eight of the eleven FMMOs recorded some participation, but it clustered in the Upper Midwest, Central, and Mideast orders, reflecting Class III cheese manufacturing. Wisconsin and Minnesota producers together made up roughly 79% of full-period participants (Wisconsin alone about 56%). Contracting producers were larger than average, about 358,000 pounds per month versus roughly 150,000 pounds for the average pooled producer, and participating plants were predominantly Class III cheese facilities. Participants were also more likely than non-participants to use other risk-management tools such as CME futures and options.

Price Outcomes: Why the Study Window Misleads

Over the 19-month study window, contract milk across the seven participating orders averaged $14.02/cwt against a non-contract average of $14.51/cwt, a shortfall of $0.49/cwt, or about 3.4%. The program still reduced volatility as intended: the non-contract price had a standard deviation of $1.80/cwt and a range of $5.71/cwt, versus $0.51/cwt and $1.63/cwt for contract milk. The shortfall arose because the window happened to capture an unanticipated 2001 supply contraction that drove spot prices sharply higher; the largest adverse gap, $4.33/cwt, fell on milk contracted in the fourth quarter of 2000 for third-quarter 2001 delivery.

The complete-period data confirm that this window was not representative. For the April 2002–December 2004 portion of the pilot, the order of the averages reverses: contract milk averaged $14.39/cwt against a non-contract average of $14.23/cwt, so contracting producers were modestly ahead. Aggregated across the entire pilot (September 2000–December 2004, eight orders), contracting producers marketed about 5.77 billion pounds of contract milk grossing roughly $814.2 million, against an estimated $821.2 million had that milk not been contracted, a difference of about $7.0 million, or under 1%. The 19-month study’s $28.2 million estimated shortfall had largely washed out by program’s end, exactly as the study authors anticipated when they noted that, over a sufficiently long horizon, positive and negative deviations should approximately cancel because the object of forward contracting is to remove uncertainty rather than to beat the spot market.

Period (eight orders)	Contract price	Non-contract price	Difference
Study window (Sept. 2000–Mar. 2002)	$14.02	$14.50	−$0.49
Post-study (Apr. 2002–Dec. 2004)	$14.39	$14.23	+$0.16
Full pilot, gross-receipts basis (Sept. 2000–Dec. 2004)	$814.2 M	$821.2 M	−$7.0 M (<1%)

Comparison with CME Futures

The AMS study also asked how a producer would have fared using CME Class III milk futures instead of a program contract, matching signing and delivery periods. Program contract prices beat the futures-adjusted non-contract price in 17 of 25 signing-delivery quarter combinations, indicating the DFPP was at least as effective as, and often more favorable than, a basic futures hedge over the window. The comparison excluded brokerage fees and any margin calls, so it modestly understates the relative cost of the futures alternative for a producer who would have had to finance a margin account.

Milk Not Pooled and the Limits of Participation

The complete-period data surface a dynamic the 19-month study could not: sharp, recurring drops in contract activity during portions of 2003 and 2004. AMS attributes these primarily to handlers choosing not to pool milk that would normally be associated with a marketing area due to disadvantageous price relationships. When Class III or Class IV prices rise above the Class I price, that inversion in the underlying price relationships can make pooling unattractive, and it is those price relationships, rather than the producer price differential, that drive the decision. The producer price differential is a mathematical result calculated during the pooling process, so it is not known to a handler at the time the pooling decision is made; a negative differential is a consequence of the same price inversions rather than their cause. Contracts written on milk not pooled generally continued, but that milk fell outside the program’s scope and so dropped out of the reported series. For an Upper Midwest audience, where the choice not to pool milk is a familiar feature of the order, this is the key caveat in reading any DFPP participation series: reported activity reflects not only producer and handler interest but also the pooling decisions that govern whether contract milk is captured at all.

Effect on CME Cash Markets

AMS examined whether the program reduced trading on the CME cash dairy markets and found lower activity after implementation, but attributed it chiefly to market conditions, particularly the sustained 2001 price climb, which required fewer transactions to establish and hold price levels, rather than to DFPP participation. Even under a worst-case assumption, the cheese potentially diverted from spot trading by the program would have amounted to less than 1% of monthly American cheese production.

Implications for Market Participants

Authorization Window and Contract Timing

The recurring pattern has a direct operational consequence: a forward contract carries the Federal order minimum exemption only while the program’s authority is in effect and the regulatory window is open. During the two recent lapses, October 2024 to April 2025 and October 2025 to March 2026, a new contract would not have exempted the handler from minimum prices even where both parties wished to proceed, though existing contracts continued unaffected. The parties were never prohibited from contracting; what they could not obtain was the exemption. Because statutory authority has consistently been restored retroactively, the program has not been permanently rescinded, but participants should track Congressional action each fall, since farm-bill and continuing-resolution timing governs whether the exemption is available. Pending legislation could end this cycle: the Farm, Food, and National Security Act of 2026 (H.R. 7567), which passed the House on April 30, 2026, would at section 1005(a) strike 7 U.S.C. § 8772(e) in its entirety, eliminating both the last-date-to-contract clause and the contract-extension-deadline clause (see note 3) and thereby authorizing the DFPP without a recurring expiration date. The bill is now before the Senate, whose Agriculture Committee introduced its own version, the Agricultural Act of 2026, on June 23, 2026; any permanent authorization therefore remains contingent on final enactment and is not yet law.

Price Risk and Contract Design

The DFPP does not promise that contract prices will match or exceed non-contract prices in any given period. As 2001 showed, unforeseen supply and demand shifts can open large gaps in either direction, and producers who took large negative differentials in the pilot were markedly less likely to re-enter. A sound strategy treats the program as a source of price certainty rather than price maximization, sizes contract coverage to a portion of production, and accounts for the basis between a Class III-referenced contract and the producer’s realized blend-equivalent return.

Where the DFPP Fits in the Risk-Management Toolkit

The DFPP serves a different function from the other dairy risk-management options. Unlike Dairy Revenue Protection (DRP), Dairy Margin Coverage (DMC), or CME futures and options, which are financial instruments layered on top of the milk sale, the DFPP operates on the physical transaction itself, allowing a proprietary handler to pay a producer a negotiated, possibly below-minimum forward price. It carries no premium subsidy or government indemnity, so its appeal rests entirely on the price certainty the two parties negotiate. For many producers it works best as one component of a layered approach, used alongside subsidized programs and exchange-traded tools rather than in place of them.

Regulatory Compliance

Contracts without a compliant disclosure statement are invalid. Both parties are responsible for ensuring contracts are properly executed, contain the required disclosure language, and reach the Market Administrator on time. Market Administrators do not adjudicate the commercial terms of a contract; disputes over those terms are matters between handler and producer or cooperative.

Verifying Current Authorization Status

Given the program’s history of periodic expiration and reauthorization, readers should confirm current status before entering or planning contracts. The new-contract deadline and maximum contract-extension date are set by regulation at 7 C.F.R. § 1145.2(b) and updated by AMS rulemaking each time Congress extends the program. The most reliable sources are:

• Electronic Code of Federal Regulations, 7 C.F.R. Part 1145: ecfr.gov/current/title-7/part-1145
• USDA AMS, Dairy Forward Contracting: ams.usda.gov/rules-regulations/dfc
• Federal Register search for “Dairy Forward Pricing Program”: federalregister.gov