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Economist highlights Class I milk price formula as top industry issue

The chief economist for the American Farm Bureau Federation says one of the top policy priorities for the dairy industry this year is changing the Class I milk pricing formula.

During the virtual Illinois Dairy Summit, John Newton says the 2018 Farm Bill amended the formula from pricing fluid milk based on the maximum of Class III or Class IV each month and went to an average of Class III and IV plus 74 cents. He says that cost some dairy farmers a significant amount in 2020.

“My estimate at this point is somewhere in the neighborhood of $500 million or more in forgone revenue to dairy farmers- money that would have been in the Class I market had we not made that change.”

He says the change was made in the 2018 Farm Bill to facilitate risk management so those in the supply chain could hedge Class I milk, but an economic analysis was never done – which he says is something that needs to happen this time around.

“We have been working for some time with a number of dairy farmers to try to identify potential solutions to the Class I problem. That is something that could be addressed on a national scale through a national federal order hearing.”

Newton says an emergency hearing could have the matter resolved in a couple of months, but he does not think the issue is narrow enough to discuss without other national dairy issues such as make allowances and block-barrel spread being brought up, which would take more time to resolve.