Ohio Dairy Producers Could Earn More for Milk Under Proposed Price Change

November 27, 2001

COLUMBUS, Ohio - A U.S. Department of Agriculture proposal to adjust the pricing rule for calculating butter and cheese may be beneficial for Ohio dairy producers.

Cameron Thraen, Ohio State University Extension dairy marketing specialist, said that if the new rule takes effect, state producers could earn an average of 55 cents more per hundred weight for their milk. Thraen speculates a final decision won't be made until late winter or early spring of 2002.

"Ohio producers should be in favor of the new pricing rule. They'd be getting more for their milk," said Thraen. "Under the current rule, they are losing 55 cents, so with the new pricing formula, they'd be getting a good deal."

The USDA proposal to modify the Class III pricing formula when translating cheese and butterfat back to protein to determine the milk price is in response to a congressional mandate included in the Consolidated Appropriations Act of 2000 which requires the secretary of agriculture to review the pricing rule.

"The formula tells the producer how much he is going to get," said Thraen. "Under the current pricing rule, the entire butterfat price per pound is deducted, but under the new proposal only 90 percent is deducted which increases the value of protein on a pound for pound basis.

"So for example, under the old formula if we saw an increase in the wholesale market of butter by 10 cents, with all other prices fixed, the Class III price would go down by 4 cents. With this new rule that same 10 cent increase actually increases the Class III price by 4 cents. An 8 cent swing in the protein price per pound is a pretty big change," he said.

Thraen stated that the proposed change is an attempt to balance the pricing system among dairy producers nationwide, but believes that the new pricing rule would have a big impact on dairy producers in the far West who sell their milk to cheese manufacturers.

"Idaho, for example, has the fastest growing dairy production in the country that produces milk primarily for the cheese market," said Thraen. "Under the new rule, if dairy producers earn a higher price, then cheese manufacturers have to pay a higher price. Increasing the average Class III price by 55 cents means cheese must bring an additional 5.5 cents on average per pound. While this turns out to be a positive impact for producers, it's the customers who will lose because they'll have to pay more for dairy products."

Under the new rule, states like Idaho would also be at a competitive disadvantage with cheese manufacturers in California who do not use the pricing formula. California is the second largest cheese manufacturer in the country behind Wisconsin.

Author(s): 
Candace Pollock
Source(s): 
Cameron Thraen