WASHINGTON, D.C. – For those following dairy policy, the last few months have been quieter than the marathon debates of the recent Federal Milk Marketing Order (FMMO) hearing. As of June 1, all but one of USDA’s amendments to the FMMO structure went into effect across the 11 orders, giving us three months of pricing data to evaluate.

Make allowances

Among the most debated changes, higher make allowances have reduced the prices farmers receive for their milk. In the first three months under the new rules, farmers lost more than $337 million in combined pool value, with Class price reductions ranging from 85 to 93 cents per hundredweight.

Make allowances represent fixed deductions per pound of product to reflect processing costs such as labor, cultures, energy, packaging, and testing. The larger the allowance, the lower the price returned to farmers.

USDA based these adjustments on a self-selected, self-reported sample of manufacturers’ costs rather than audited, industry-wide data. As a result, the adopted figures may not reflect actual costs and can artificially reduce farmer pay prices.

The impacts are clear. Average prices dropped by 89 cents per hundredweight for Class I, 85 cents for Class II, 92 cents for Class III, and 85 cents for Class IV — a 4 to 5% cut across the board. Pooled revenues fell by $337 million nationwide, led by losses in the Upper Midwest ($64 million), Northeast ($62 million) and California ($55 million).

These reductions come amid softer global demand, elevated production and seasonal weakness. While lower feed costs offered relief over the past year, the added hit from higher make allowances narrows margins and could accelerate stress if milk prices slide further.

A positive development comes from the One Big Beautiful Bill Act, which requires USDA to conduct biennial surveys of pro-cessors’ actual manufacturing costs. This should provide more credible data for future make allowance decisions, though any adjustment will still require a full hearing.

Base Class I milk price formula

The Class I mover sets the base price for fluid milk. After years of advocacy, USDA’s final rule restores the higher-of formula, replacing the average-of method that caused major revenue losses when Class III and IV prices diverged.

Results so far are mixed. In June and July, when the spread between Class III and IV was narrow, the average-of formula would have returned 70 and 43 cents more than the higher-of. In August and September, the higher-of was advantageous, adding 11 and 16 cents, respectively.

This outcome is expected: when the spread is below $1.48 (twice the old 74-cent adjuster), the average-of tends to yield more; when it is larger, the higher-of performs better. The real value of the higher-of lies in periods of volatility, where it better protects against sharp downside risk.

USDA also added an extended shelf life (ESL) adjuster for the roughly 8–10% of fluid milk sold as ESL. Since June, it has ranged from $1.38 to 53 cents, before rebounding to 97 cents in October. While it has added value to Class I, its month-to-month swings introduce new uncertainty in farmers’ milk checks.

Class I differentials

Differentials increased in most counties, averaging +$1.24 per hundredweight nationwide. This offsets some make allowance losses, though benefits vary by region.

From June through August, differential changes boosted pool values by $137 million, led by the Northeast (+$34 million) and Mideast (+$30 million). California and the Upper Midwest saw only modest gains of $6 to 8 million despite being hardest hit by make allowance increases.

Location differentials add another wrinkle. Changes shifted some adjustments from positive to negative, erasing historical advantages for certain areas. As a result, even in orders, where pool values rose, some farmers may see relative or absolute losses in their milk checks.

Other changes

USDA’s removal of 500-lb barrel cheese from its National Dairy Product Sales Report complicates impact analysis. Since June, only 40-lb block prices are used in Class III formulas. While pool impacts cannot be measured the same way, CME spot data show barrels generally trading below blocks, suggesting the change modestly lifted Class III prices — a benefit to high-manufacturing orders like the Upper Midwest.

The final amendment, updated composition factors, takes effect Dec. 1. Advances in breeding and nutrition have increased average solids levels beyond USDA’s old assumptions. Updating the skim solids factors will better align pay prices with actual milk composition.

Estimates suggest this change could add $200 million annually to pool value. But because implementation was delayed six months, farmers effectively lost $100 million they would have otherwise received, a costly miss given the immediate rollout of make allowance hikes.

Three-month check-in

Three months into implementation, the early impacts of USDA’s FMMO amendments are becoming clearer. Higher make allowances have imposed the most significant cost to dairy farmers, cutting $337 million from pool revenues and lowering class prices across the board. Other changes are less visible or offer regionally lopsided effects, and updated composition factors are delayed, but should add value starting in December.

Taken together, these changes highlight both the strengths and weaknesses of the FMMO system, which continues to provide stability in milk marketing, but its reliance on limited data and the contrast between delayed implementation of composition factor updates vs. immediate rollout of processor-favored make allowance hikes highlight the ongoing imbalance in how risk and reward are shared.