What does it all mean?

EAST EARL, Pa. — Dairy farmers often face confusion when it comes to their milk checks. For starters, they don’t know what they’ll be paid for their milk until two weeks after all of it is shipped for the month. Then there are the many USDA milk price announcements that come at different times, in different forms, and with complex calculations.

In preparation for the phases of implementation of new Federal Milk Marketing Order (FMMO) pricing formulas, we thought a primer on the various price announcements would be helpful.

Table I is March 2025 data because those mailbox milk prices are the most recent, announced on June 25, and still under the previous pricing formulas.

What’s the market?

The CME futures market trades daily on Class III and IV manufacturing milk and the four underlying commodities. This helps shape market expectations but does not directly reflect farmer milk checks.

USDA does weekly mandatory reporting for just four commodities used in FMMO formulas: 40-lb cheddar blocks and dry whey related to Class III, and nonfat dry milk and salted butter related to Class IV. These don’t reflect the full dairy market.

Other high-volume bulk dairy products like mozzarella, skim milk powder, unsalted butter, and whey protein concentrate are not included in mandatory reporting because they are not included in the FMMO formulas.

Future efforts must ensure that the cost to make these other products be excluded from the make allowances because the value is excluded from the producer price formulas!

It would help to get more price discovery of these other high volume bulk products for informational purposes, but Congress would have to change the wording in the Mandatory Reporting Act.

Fluid milk (Class I), the grocery store staple, does not have its own price discovery mechanism, relying instead on the Class III and IV pricing factors plus location differentials. Fluid milk is regulated through the FMMO system, and Class I is the only class required to participate. Additionally, fluid milk is often sold at a loss by supermarkets in most states (not Pennsylvania), leaving consumers with false perspectives on real cost and value.

What’s the minimum?

Producers have no control over USDA pricing formulas; however, they can impact their own milk checks by improving component yield. Producer milk pooled on a Federal Order (FO) is subject to a unique minimum price that is based on actual component yield. Even the four fat/skim FOs value actual butterfat by the pound. The other seven multiple component FOs value all components at actual test as part of each producer’s unique minimum price.

Meanwhile, USDA FMMO price announcements are index prices, standardized at 3.5% fat. Most farms produce milk above this level, meaning the minimum price would be higher than the announced standardized minimums.

Settlement milk checks often show a gross price, but no two milk checks are the same. Dairy farmers can find themselves confused about whether or not they received their minimum FO price (not to be confused with the announced price at 3.5% fat). They can have trouble following what line items are part of their unique minimum price and what represents true premiums.

Handlers may shift values between line items, making it difficult for producers to figure out their true ‘basis’ when planning risk management strategies. In some cases, premiums may not be additional earnings but instead could be used to fulfill the handler’s minimum price obligation while other line items, such as ‘other solids,’ can be underpaid on the other side. Also, butterfat payment above 3.5% is not a bonus, it is part of a handler’s minimum price obligation for pooled producer milk.

There are also differences between cooperative and proprietary handlers. USDA recognizes cooperatives as “the producer,” meaning cooperatives are not required to pay each member-shipper’s unique gross minimum price. Unlike proprietary handlers, co-ops can include additional deductions and reblend prices across multiple FOs.

Both co-ops and proprietary handlers can decide where to ship a producer’s milk, into what product class, and whether to pool or depool all or some of that milk later after class and component prices are announced.

Once all the milk is shipped for the month, handlers can look at the class price relationships and make pooling decisions that reduce their pool obligations. When milk is depooled, producers may not receive the benefits of the minimum price requirements, or they may receive a larger payment from that handler, while the pool is deprived of the revenue, affecting other producer milk. This can create ‘winners’ and ‘losers’ and negatively impact PPD and risk management performance during times of significant market moves.

Sometimes pooled and depooled milk payments are combined in one milk check, making it difficult to track whether minimums were appropriately paid. This is why the FO 30 (Upper Midwest) market administrator sent letters to handlers a year ago clarifying they must show separately how pooled milk was paid vs. depooled milk, from the same producer.

Here’s a simplified guide to the many milk prices announced by USDA. Keep and use this key for Table 1 which is created for comparison and will be published periodically.

1. Statistical Uniform Price (SUP) at 3.5%F is announced by FO market administrators two weeks after all milk has shipped for the month. It’s an average pooled milk price blended by class use and standardized at 3.5% fat (Table 1, column 2). In the seven multiple component FOs, a Producer Price Differential (PPD) is also announced, which is the blended price, minus the Class III price, both standardized at 3.5% fat, 2.99% protein. When Class III protein becomes more valuable, and there is more of it to pay for relative to pool revenue, the PPD average is reduced and can become a negative number.

2. SUP at test is also published by some FO market administrators. We used data in the monthly SUP report to calculate SUP “at test” for those that don’t publish one. This price more accurately reflects the value of pooled producer milk at the pool’s average (and applicable) component test (Table 1, column 1).

3. NASS all-milk price is reported by the USDA National Agricultural Statistics Service four weeks after all milk has shipped for the month. It’s an average price calculated as gross receipts, including premiums, divided by milk hundredweights, before deductions. It is not standardized to 3.5% fat. It reflects both pooled and non-pooled, conventional and organic milk, and is calculated nationally and for each of the top 24 milk producing states (Table 1, column 3). The U.S. average all-milk price is used in the Dairy Margin Coverage (DMC).

4. AMS mailbox price is the most complete but delayed number, published by the Agricultural Marketing Service. AMS oversees the FMMO pricing system and reports mailbox prices three to four months after all milk has shipped for the month. It includes all premiums and payments and all deductions, including hauling and checkoff. It is reported as a national average price and separately by region or state where 75% or more of the data represents pooled milk. It is not standardized to 3.5% fat (Table 1, column 4). Despite the long wait, the mailbox price is useful for benchmarking because it is closest to a real net milk check, allowing producers to compare their own net milk check with these averages and to evaluate trends. Four of the top-24 milk-producing states — Idaho, Utah, South Dakota, and Arizona — do not have mailbox data, but the NASS all-milk price is available.

5. Advance Class I (fluid) price is the only price released before milk shipping begins each month. Class III and IV price data from the first two weeks of the prior month are used to set the advance base Class I price, or ‘mover.’ Market Administrators in each of the 11 FOs publish this price with the base zone differential, including applicable transportation and/or intra-order credits, standardized at 3.5% fat (Table 1, column 5).

6. Class I utilization reflects the percentage of pooled milk that went into Class I. It affects the calculation of SUP (Table 1, column 6). Class I fluid milk represents about 18% of total U.S. milk production.

7. Class and component prices are announced by USDA four to five days after all the milk has shipped for the month. The component prices are derived from a weighted average of the weekly prices for the four commodities, minus their respective make allowances, which are then used to determine the Class II, III, and IV index values, standardized at 3.5% fat. Since most producer milk is shipped above 3.5% fat, the true minimum value is higher than these standardized prices suggest. At this point, farmers do not know whether their milk will be pooled. In many FOs, the rules are weak, allowing handlers to make monthly pooling decisions after class and component prices are announced to see how things line up on pool draws or payments. Only producer milk that directly serves the Class I fluid market or meets other FO criteria is required to pool. Some FOs have criteria that ‘other producer milk’ must meet in order to be allowed to pool. Some FOs have rules that make it harder to ‘ride’ a pool or to jump in and out of a pool.

This report has been compiled based on reading official definitions by USDA, learning from off-record sessions with producers and their FO market administrators, sending questions to NASS and AMS staff, covering the national pricing hearing, fielding producer questions about their milk checks, and following price reforms and announcements for over 25 years.

Farmshine will update and publish Table 1 periodically so producers can periodically make comparisons to see how their milk checks are stacking up. This can be helpful when weighing improvements for higher component yield, figuring ‘basis’ for risk management, and negotiating true premiums — if markets become competitive. Future updates will also cover how the June 1 implementation of new FMMO rules impact these trends and comparisons.