Lower US milk money due to new milk price system

The American milk price system is complicated and difficult for an outsider to understand. The reason is that it works with four quality classes and with deductions for processing costs and with surcharges for transport, among other things.

The first impression is that the minimum price is slightly increased by the latest update. As a result, the milk price per gallon (more than 3,7 liters) increases by a maximum of 11 dollar cents, or the equivalent of 2,9 euro cents per liter.

Net it is different
However, the net result is different, such as in the Netherlands with the adjustment of the milk price to higher standard contents. The deduction for processing costs in particular is increasing. So much so (although it seems to be a matter of cents) that the average milk price will be lower this year and next year than in 2024, according to Cornell University, apart from normal market movements of course. Many farmers and their organizations initially spoke positively about the adjustments, but possibly because they do not yet have much insight into the actual consequences.

In principle, the American dairy market is subject to free pricing, but minimum prices do apply to most of the milk produced, which differ depending on the intended use of the milk. There are four classes of milk: class I concerns drinking milk, class II is for ice cream and cottage cheese, class III is cheese milk and class IV is for butter and powder.

More than 70% in FMMO
In 2023, approximately 70% of all milk supplied was sold under the rules of the Federal Milk Marketing Ordersystem (FMMO). In total, this involved a volume of 71,8 billion kilos, originating from more than 22.000 dairy farmers. The minimum prices do not apply to milk produced by cooperatives. In 2024, the share of the FMMO in the total milk supply increased even further.

The minimum milk prices have been updated to better align the legal price with reality. Just like in the Netherlands, the content contents have also increased on average in the US. In addition, better logistical compensation applies. Most farmers do not like the adjustments for the processing costs, because this compensation is deducted from the milk money that they receive as a minimum.

Bio outdoor boat
One special group is clearly not happy about it, and has been for some time. This concerns the group of organic dairy farmers. The US has approximately 2.300 of them, with a combined milk production of 2,3 to 2,4 billion kilos of milk. They would like to have their own milk class, for example as a subcategory for class I milk, but that will not happen for the time being. The minimum milk price for organic milk remains the same as for conventional milk, and that hurts when there are surpluses in the market.

DMC complements FMMO
Legal minimum prices alone are not enough to buy the American dairy farmers a living. What matters is what margin remains. Another tool was created for this, many years ago. It is the Dairy Margin Coverage (DMC) program, a government-subsidized margin insurance. There was not much interest in this at first, partly because the chance of a payout was initially quite small, but the program has now been adjusted and participation is really worthwhile. This has increased interest. Many farmers see the insurance as a useful safety net in case the margin between costs and revenues threatens to turn out very badly.

In 2023, it was such a year with tight margins on average. Then, participation in the DMC program helped to cover costs. Last year, there was a strong recovery. Then, farmers benefited from relatively high dairy prices, both for class III milk (cheese milk) and on average (all milk), while feed costs were low. This was especially the case in the second half of the year. Then dairy farmers were able to get some fat on their bones again.