It took more than two years, but the update of the Federal Milk Marketing Order (FMMO) formulas is going to be implemented on June 1, 2025. A referendum of producers in the 11 FMMOs took place in December. The votes were tabulated by USDA and the changes were approved in all orders. Two important things to remember about the referendum; first, the vote is between the new order and NO order, not between the the new order and the old order. Second, cooperatives can (and mostly do) vote on behalf of all of their members. Given the huge percentage of production in the orders that is under cooperative control, there are not that many votes to count.
The main changes to the formulas will be:
Increases in the make allowances in the Class III and Class IV formulas, which will decrease the Class III formula price by about 90 cents per cwt. and the Class IV price by about 85 cents per cwt.
The Class III formula will now be based entirely on the national average 40# block cheddar price instead of a combination of the block and cheddar barrel price.
The Class I price will now be based on the “higher of” either the Class III formula price or the Class IV formula price instead of the current “average of.” However, Extended Shelf Life milk will have an “average of” mover that will be adjusted over time to pay out what the “higher of” formula produces.
Class I differentials, which is the value per cwt. that is added to the monthly base price for fluid milk, are going up by between 60-70 cents per cwt. in California.
On December 1, 2025, the announced Class III and IV prices will be calculated based on more pounds of protein and other solids in standardized milk. This will not change the per pound prices for protein, other solids, and solids nonfat in the Class III and IV formulas, but it will change the announced Class III and IV cwt. prices because each cwt. will contain more pounds of protein and other solids than they do currently. This increase in the announced prices will impact Class I because that price is indexed to the announced cwt. values for Class III and IV.
Bottom line: Announced Class III and IV as well as Class II milk prices for June 2025 be lower than they would have been under the current formulas, and Class I prices will be higher. But who knows what will happen to the underlying prices for block cheese, butter, dry whey and nonfat dry milk upon which all these formulas depend. The formulas had not been changed since 2008 and an update was due. The FMMO system provides the essential framework for balancing market power between producers who have to sell milk every day and processors who do not have to buy every day. The government is the referee. They have done their best to take everyone’s point of view into consideration. Ultimately it is the market that determines milk prices.
Geoff Vanden Heuvel
Director of Regulatory and Economic Affairs
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