Pictured: A look inside the hearing room in Carmel, Indiana. This is where the dairy industry is gathering to talk to a USDA ‘jury’ about reforming milk pricing. Photo courtesy of Edge Dairy Farmer Cooperative.
Edge Dairy Farmer Cooperative has been representing its members in Carmel, Indiana during the Federal Milk Marketing Order hearings. This is in an effort to bring milk pricing into modern day.
Edge CEO Tim Trotter says the cooperative’s proposals focus on improving price discovery, maintaining risk management and sustaining federal orders.
Edge also submitted its standalone improvement to milk pricing called Class III Plus. This which would tie the Class I (fluid) skim milk price to the Class III (cheese) skim milk price. It would add an adjuster and remove advanced pricing. Edge argues advanced pricing is a leading cause of negative producer price differentials. These two changes maintain the ability for Class I hedging by industry participants. It also creates a mover based on the most-traded commodity in dairy: cheese.
Today, the average-of pricing system moving the Class I price has the benefit of hedging throughout all products. But, it places all downside risk on farmers when compared to the previous higher-of system.
Edge also brought forth proposals beyond its Class III Plus model, including several logical outgrowths of proposals from other groups. Edge proposals include:
- Updating the fat components alongside updated protein numbers
- Delaying any changes that would impact pooled milk prices for 15.5 months to ensure no interruption of risk management positions and opportunities
- Modernizing the Class III pricing system to include both blocks and barrels of Cheddar cheese, rounded to the nearest 5% of production
- Scrutinizing make allowance data to ensure any updates rely on accurate, complete data of highly efficient plants
- Improving the Class I mover by introducing the Class III Plus program, which includes the removal of advanced pricing, to price milk on cheese
Nearly a dozen dairy farmers have voiced support for Edge’s proposals in their testimony throughout the hearing. USDA has provided farmers the opportunity to provide virtual testimony on each Friday of the proceedings.
”One of the biggest hurdles producer price risk management has seen over the last few years has been more frequent negative PPDs or producer price differentials,” Nicole Barlass, a dairy farmer from Sheboygan Falls, testified. “[Edge proposals eliminate advanced pricing], one of the most popular causes of negative PPDs.”
Edge staff and advisers have constantly monitored the hearing throughout, looking for opportunities to better enhance risk mitigation.
“We utilize risk management tools when we can on our farm, including DRP, DMC, futures contracts, options and hedge-to-arrive contracts,” Edge board member Justin Peterson of Bangor said in testimony. “If any of our risk management tools were to be suspended for any amount of time, we would risk significant financial exposure for our business.”
Edge Managing Director Lucas Sjostrom also testified based on his experiences as a farmer and working with farmers.
“Every dairy farm is managed by a hard-working family who must know many things about biology and financial management,” Sjostrom said in testimony. “I hope USDA pays special attention to the farms who are looking to grow into their next chapter, and, thus, those that will take a little more risk than the average.”
The hearing started on Aug. 23. Edge expects it to resume in late November 2023. But first, a federal government funding agreement must pass.