(Continued from Page Alt)
the United States. Farmers in
the old federal orders 1,2, and 4
are now all included in Order 1.
“The original order system re
lated to local class I markets,”
explained Schad. “But now milk
travels much longer distances.
The new orders reflect regional
milk markets.”
42 percent of the milk pro
duced in Federal Order 1 goes
toward Class I milk, which is
processed as fluid milk. 30 per
cent goes to Class 111, which is
used to make cheese, while 18
percent goes for Class II or soft
products, like yogurt or sour
cream. And 10 percent is mar
keted as Class IV, which is used
for butter and powder.
Under the new milk pricing
system, the blend price for Fed
eral Order 1 is a weighted aver
age of all four classes. It is
basically formulated by taking
the Class I milk price multiplied
by .42, the Class II price by .18,
the Class 111 price by .3, and the
Class IV price by .1, and then
adding the four totals together.
According to Schad, the new
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Land O’Lakes Explains New Pricing System
system benefits the farmer be
cause the Class I price is based
on the higher of either Class 111
or Class IV.
“In January, the Class IV
price was $1 higher than the
Class 111 price, so bottlers paid a
dollar more per hun
dredweight,” said Schad. “That
added about 40 cents to farmers’
blend price.”
The new system also estab
lishes “multiple component
pricing” in which the farmer’s
price is based on three different
components found in the milk -
true protein, other solids, and
butterfat. This “multiple com
ponent pricing” takes into ac
count what the processors want
most from the milk.
“Cheese makers want the
protein from milk,” said Schad.
“So they’ll pay more for it, while
Class IV users want butterfat,
protein, and solids.”
The farmer’s milk check will
list pounds produced for each of
the three components. That
poundage will be multiplied by
the unit price the processor is
paying for that component, and
then the three values will be
SOONER.
added together to get the Class
111 price that farmer receives for
his milk.
For example, if a hun
dredweight of milk tests for 3.1
percent protein, 5.6 percent
other solids, and 3.5 percent but
terfat and if processors are
paying $2.12 per pound of pro
tein, $.049 per pound of other
solids, and $.86 per pound of
butterfat, the Class 111 price for
that farmer would be $9.8564
per hundredweight.
The Class 111 price is then
converted to the blend price by
accounting for the Class I, 11,
and IV milk price at the market.
This conversion is called the
Producer Price Differential, and
it equals the pooled difference
between Class 111 and the other
classes.
This is where it gets tricky
the Producer Price Differential
is announced in Boston, Ms., but
the Boston price only works for
farmers who are shipping their
milk into Boston. Most farmers
around here don’t send their
milk to Boston, so their blend
price also takes into account a
Location Adjustment.
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UwcMter Farming, Saturday, January 22, 2000-Al9
The location adjustment basi
cally equates the Producer Price
Differential to where the farm
er’s milk is delivered. For exam
ple, milk shipped into the
Carlisle, Harrisburg, and Her
shey area would have a location
adjustment of -$0.45. That
means that 45 cents would be
deducted from the PPD price
announced in Boston for farm
ers shipping their milk to Carli
sle.
According to Schad, the han
dler or cooperative will have a
choice of either showing the lo-
Order No. 4 Weighted
Price $12.47 For December
ALEXANDRIA, Va.-The De
cember 1999 weighted average
milk price announced for the
Middle Atlantic Marketing Area
is $12.47 per hundredweight.
The weighted average differ
ential price was $2.76 per hun
dredweight and the producer
nonfat milk solids (NFMS) price
was 73 cents per pound. The
weighted average price was
down $3.25 from November and
Farmers Can
cation adjustment on a farmer’s
milk check or automatically de
ducting it from the PPD price.
Land O’Lakes will have a line
item on the check with the loca
tion adjustment listed.
“The bottom line of the new
pricing system will benefit farm
ers who are making what the
processors want,” said Schad.
“Farmers will now be paid the
most for protein, which is used
to make cheese.” In the past,
farmers producing high
amounts of butterfat profited
the most.
was $4.88 lower than a year ear
lier. The producer NFMS price
was down 67 cents from last
December.
The nonfat milk solids price,
applicable to handler payments,
was $.7407 per pound for the
month, down 66.92 cents from
last year. The gross value of
December producer milk, adjust
ed to 3.5 percent butterfat was
$72.5 million, compared to $92.3
million a year ago.
Producer receipts totaled 586.9 million
pounds during December, an increase of 51.7
million pounds from last December and the
average daily delivery of 3,749 pounds per
producer increased 155 pounds or 4.3 percent
from a year earlier. A total of 5,050 producers
supplied Order 4 handlers during the month,
an increase of 246 from a year ago.
Class I producer milk totaled 253.0 million
pounds and was up 19.7 million pounds, or 8.4
percent, from last December. Class I milk
accounted for 43.11 percent of total producer
receipts during the month, compared with
43 60 percent in December 1998.
The average NFMS test of producer milk
was 8.73 percent, down from 8.76 percent the
previous year. The average butterfat test of
producer milk was 3.83 percent, up from 3.80
percent last December.
Middle Atlantic Order pool handlers
reported Class I in-area milk sales of 199.6
million pounds during December, an increase
of 3.6 percent from a year earlier, after adjust
ment to eliminate variation due to calendar
composition.
(Continued from Page A 18)
Understand the information on your milk
check. Bailey does recommend that farmers
take more interest in understanding how their
milk price is formulated. “Everyone pro
ducing milk in Pennsylvania has to under
stand how the milk price is determined,” he
said.
“When the price is announced by the
market administrator, farmers should be able
to look at their milk check and determine if it
falls in line with the price that was an
nounced. If it doesn’t, they need to ask ques
tions to their cooperative or dairy.”
Bailey’s web site includes a forecast of the
milk prices for the next 12 months, along with
an explanation of how the new milk pricing
system works. “It’s my job to take the milk
prices that come out of Washington and ex
plain what they mean,” said Bailey.
Farmers who have access to the Internet
should visit Bailey’s website,
www.aers.psu.edu/dairyoutlook, to utilize the
spreadsheets and information available on
the site.
Bailey also hopes to provide dairy exten
sion agents with the forecast numbers,
spreadsheets, and benchmark tools from the
web site so that the agents can share the infor
mation with farmers in their counties.
MILK. IT DOES