Balanced Dairying: Economics, Volume 15, Number 1, May 1995 Page: 3
4 p. : ill. ; 28 cm.View a full description of this periodical.
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One National Order
Proponents of one national order argue that it makes
little sense to have more than one federal order since milk
can move so easily from one area to another. Those
supporting one order contend, regardless of origin or
destination, all Grade A milk is the same. Nearly all the
milk marketed in the United States is Grade A and both
fluid processors and processors manufacturing products
essentially compete on a national market for milk needs.
Products manufactured from this milk do compete
nationally. Further, since milk for beverage (Class I or
fluid) use does command a higher price it makes sense to
proponents of one order to share in the proceeds from
milk sold for fluid use. If one order is introduced, it is
unclear how prices in the southwest would be impacted.
One National Pool for Milk
The milk pool is the total dollar receipts from the sale
of milk. This pool is divided among the producers whose
milk was used to create the pool.
One way a national pool could be created is to have all
milk sales receipts across all orders added together and
then divide the total among all producers contributing
milk to create the pool. Under this arrangement, the
Class I milk sold in each marketing order would be
valued at the Class I price in that order. The Class II milk
would be valued the same across all orders at the Class II
price. Class III milk would be valued across all orders at
the same Class III price. Class IIIA milk would be
valued at the same Class IIIA price across the markets
having Class IIIA milk. The resulting price is a national
uniform or blend price. Class I differentials may not be
changed if this procedure is adopted. The national
uniform price would pull prices up for producers in
federal orders with low fluid utilization and high
manufacturing utilization while reducing blend prices in
high Class I use markets.
Another proposal for a national pool relates to
the removal of butter and non fat dry milk from the
support program. This proposal is being introduced in an
effort to expand butter and non fat dry milk exports
beyond GATT limitations and to eliminate the budget
assessment. Proponents argue that removing these
products from the support program will reduce the total
value of milk in the market system. However by
exporting them, it may help to maintain producer prices.
Since all producers would benefit, a national pool would
be used to distribute the difference in the value of theproduct at support levels and the market value.
A third proposal is to create a national pool to
compensate for losses attributed to a change in the MW
price. The pool distribution would be in proportion to
the market milk used in Class III products. Losses in
value due to MW changes would be made up by increases
in the Class I and Class II prices.
Leveling the Class I Differential
One proposal that is gaining momentum among
some dairy producers is a single Class I differential for all
beverage milk marketed in the United States, or at least
for all federal milk orders. One version of this proposal
is to level the differences between orders by raising the
minimum differential to a higher level. There would also
be differentials for distance within markets. It is likely
that over order premiums would have to be used to move
milk across orders. The net affect, in general, would be to
raise uniform prices in northern states.
Changes in Existing Differentials
In 1985, Congress legislatively changed the
Class I differentials in all orders. The result was a
generally higher average differential across all orders.
Differentials were raised in both the north and the south
but some felt that southern order differentials were raised
too much. Differentials were also adjusted somewhat
east and west to accommodate alignment between
adjacent orders and to account for pockets of surplus
milk. Milk production was expanding in the southwest
prior to the differential increases but to detractors this
production increased at an increasing rate after the
differentials were changed. At the time the south was
expanding, many northern producers were exiting the
industry. The blame for southern production growth was
placed on southern differentials. Consequently, there is
political pressure to lower southern differentials and/or
raise Northern differentials.
Eliminating Differentials
There is a remote a possibility that federal
orders would be kept but that fluid milk differentials
would be eliminated. Milk could be priced at one
minimum price for all uses. Essentially, there would not
be any Class price. Processors of milk for all uses would
compete with each other for supplies. Milk prices
between marketing regions would differ by the cost of
moving milk or dairy products from the market region3
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Texas Agricultural Extension Service. Balanced Dairying: Economics, Volume 15, Number 1, May 1995, periodical, May 22, 1995; College Station, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1624330/m1/3/: accessed June 25, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.