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AFBF breaks down how milk is priced

American Farm Bureau is examining how milk is priced in the U.S. and ways the Federal Milk Marketing Order system can be improved as requested by members at the beginning of this year.

Chief economist John Newton tells Brownfield the current system is complicated, and the prices farmers receive are mostly based on how milk is used in regions.

“We’ve got to find something that works for dairy farmers, works for processors, and ultimately, makes the U.S. much more competitive.”

He says the volume of milk sold on the Chicago spot market represents about three-tenths of a percent of the total milk produced in the U.S. but is a main driver to prices nationwide.

“The challenge here is that these regulated prices that we have on the Federal Milk Marketing Order are ultimately tied back to the prices discovered in this low volume market.”   

He’d like to see more market participants in mandatory price reporting surveys to increase spot trade volumes.

“A lot of the largest dairy processors in the country don’t even participate in these spot markets because of the ultimate impact it will have on milk prices if say they sell a surplus load of cheese or butter.”  

Newton’s analysis is ongoing and will be used as farm bureau members draft dairy policy to reform the current milk pricing system.