Understanding ‘location adjustment’ and producer price differential since June 2025 FMMO updates

EDITOR’S NOTE: Recent discussions about Class I differential increases and larger negative location adjustments have created confusion following the FMMO pricing changes a year ago. Under FMMO rules, location adjustments are based on where producer milk is received and priced, not the physical location of the dairy farm. Longtime expert Calvin Covington explains how the revised Class I differential map and larger negative location adjustments affect milk pricing and producer returns.

Class I differentials increased in all Federal Milk Marketing Orders (FMMOs) a year ago on June 1, 2025. Each county or parish in the U.S. is assigned a Class I differential. Each FMMO announces the Class I price and the producer uniform or blend price at a base county or city within that county. FMMOs using multiple component pricing (MCP) also announce a producer price differential (PPD) at the base zone.

Within each respective FMMO, a location adjustment is added or subtracted from the base zone prices for plants located in counties with Class I differentials higher or lower than the base county. The increase in Class I differentials changed the Class I, uniform producer price, and PPD relationships within FMMOs.

Let’s look at the Northeast FMMO, where Suffolk County (Boston, Mass.) is the base zone. As shown in Table 1, the Class I differential in Boston increased from $3.25/cwt to $5.10/cwt, a $1.85/cwt increase. This is the highest Class I differential for any county in the Northeast FMMO. A few other Northeast counties around Boston and New York City also have a $5.10 differential.

All other Northeast counties are below $5.10. This means most Northeast FMMO counties have a negative location adjustment from the base zone to account for the difference.

Table 1 compares the change in Class I differentials for selected Northeast FMMO cities. For example, the differential for plants in Baltimore increased $1.60/cwt. This is a $0.25/cwt smaller increase than Boston, the base zone. Due to the smaller increase, there is a larger negative location adjustment today in Baltimore than before June 1, 2025. The location adjustment changed from negative $0.25/cwt to negative $0.50/cwt.

For all Northeast counties where the size of the Class I differential increase was smaller than at the base zone, the location adjustment became more negative to reflect this difference.

Before proceeding, let’s review the two ways location adjustments are applied.

First, is to the Class I price. FMMOs require regulated fluid milk processors to pay the minimum FMMO class prices. The Class I price is the Class I mover plus the Class I differential at the location of the fluid processor. A Boston fluid processor pays a $5.10/cwt differential above the Class I mover. A Baltimore fluid processor pays $4.60/cwt, or a location adjustment of negative $0.50/cwt below the base zone.

Second, location adjustments apply to the PPD in the seven FMMOs that use multiple component pricing (MCP). In orders without MCP, the location adjustment applies to the uniform price.

Using April 2026 as an example, the Northeast PPD was $3.43/cwt at the base zone, Boston. Any fluid milk processor located in Boston or another $5.10 zone was required to pay the following for producer milk received: 1) the minimum producer butterfat, protein and other solids prices; plus 2) the $3.43/cwt PPD.

Again using Baltimore as an example, a producer shipping milk to a Baltimore plant receives the same minimum component prices as a producer shipping to Boston, but the PPD is $2.93/cwt, which is the $3.43 base zone PPD for April 2026 minus the location adjustment of $0.50/cwt = $2.93/cwt.

This calculation simply reflects that a producer delivering milk to a plant in the $5.10 zone receives $0.50/cwt more than a producer delivering milk to a plant in a $4.60/cwt zone.

A larger negative location adjustment for most counties in the Northeast FMMO may lead some to think a fluid processor is paying a lower milk price or a producer is receiving a lower PPD due to the differential changes. This is not correct.

Class I differentials and PPDs are lower in most Northeast counties when compared to the base zone; however, when compared to Class I and PPDs prior to June 2025, both are higher today.

Let me explain. Again, I will stay with the Baltimore example. First, let’s look at the fluid processor. The Baltimore fluid processor is paying $1.60/cwt more for the Class I milk it receives today compared to before June 1, 2025. The Baltimore location adjustment changed from negative $0.25/cwt to negative $0.50/cwt. A Baltimore fluid milk plant’s minimum Class I price is now $0.50/cwt lower than Boston or New York City, but the total Class I price is still $1.60/cwt higher than before the June 2025 changes.

Now let’s turn to the PPD. The increased Class I differentials add revenue to the FMMO pool, thus increasing the PPD. Comparing the first four months of 2026 to 2025, I estimate increased Class I differentials added $0.43/cwt to the Northeast FMMO PPD.

In the pooling computations, negative location adjustments are added as pool revenue, thus also increasing the PPD. Using the same time-period, I estimate this increased the Northeast FMMO PPD by $0.28/cwt.

Together, the increase in Class I differentials and the changes in location adjustments increased the Northeast FMMO PPD by a combined estimated $0.71/cwt.

A producer shipping milk to a regulated pool plant located in the $5.10 zone receives the full estimated $0.71/cwt. increase. A producer shipping milk to a plant located in a zone with a greater negative location adjustment receives a smaller increase. The gain is the $0.71/cwt, less the change in location adjustment.

The bottom line: In the Northeast FMMO example, the change in Class I differentials increased the Class I price paid by all processors and the PPD to all producers. The increases were greater in the $5.10 zone, relative to other milk delivery locations.

More importantly, the Class I differential changes increased the PPD for all Northeast FMMO producers. The level of increase varies based on delivery location, where the producer’s milk is received and priced under federal order rules.