US COMMODITIES CORNER SPECIAL
The US milk payment system...How do they control the moooovements?
Payment for milk in the United States is primarily controlled by the Federal Government. Federal Milk Marketing Orders have been in place for a century, and continue to dominate the payment for milk in the United States.
The last major revision of the process was implemented in January 2000. This system still controls payment in 60% of the milk in the United States.
Milk is so essential to health, that it was controlled to ensure an adequate supply of fresh milk. Essential to ensuring an adequate supply of fresh milk, producer milk pricing processes were developed to help producers and processors survive financially.
While the Federal Order concept has been in place for over 100 years, the current Milk Marketing Federal Order system was implemented on January 1, 2000.
This revision consolidated many of the smaller Federal Orders into 11 Federal orders, seven paying strictly on components, and four paying for milk volume and butterfat content. One Federal Order in the upper far West was disbanded by a vote of its members, so there are currently ten Federal Orders. In the map below, the six that pay on components are in color and the four that pay on milk volume and butterfat are outlined geographically.
California is not a Federal Order as explained below.
Federal Milk Marketing Orders cover most of the milk in the United States. In 1937, California was able to convince the courts that their milk supply and usage were not interstate commerce. California was therefore excluded from the Federal Milk Marketing Orders and was allowed to manage their own payment system.
Today, California would have difficulty proving that their milk is intrastate, but the system still stands.
More recently, other events have reduced the Federal Government control of pricing.
In May 2004, the Western Federal Milk Marketing Order was disbanded. In the Upper Midwest, nearly 20% of the milk is 'de-pooled' from the Federal Order for that area. That has lead to a trend which will probably continue. By comparison, between 2011 and 2012, unregulated milk has increased from 14% to 19% of the total US milk supply.
Dairy has changed materially over the last 50 years. Consumer eating habits have significantly changed. Per capita fluid milk consumption has dropped by 50% since 1945. Per capita butter consumption has dropped by 70% since 1930. Cheese per capita consumption has increased 300% since 1970.
During this session we will concentrate on the Federal Milk Marketing Orders that pay on components.
In 2012 they represented half of the US milk supply. If we consider the milk that is not pooled in the Federal Orders, and the payment systems that have perpetuated in other unregulated areas, the number would be well over 50%.
US-based John Geuss is the editor of US dairy commodities blog, MilkPrice.
For part two of John's four part special on the US milk payment system see DairyReporter.com next week.