March 05, 2010
Commissioner Asks USDA To Consider Class I Floor for Milk Prices
De-Coupling Fluid Milk from Manufactured Products Could Help Strengthen, Stabilize Prices for New Yo
New York State Agriculture Commissioner Patrick Hooker recently wrote to USDA Secretary Thomas Vilsack encouraging him to consider the benefits of establishing a national floor for the Class I prices. By doing so, Class I prices for fluid milk would ultimately be de-coupled from manufactured classes of milk, which are typically lower and drive down the price farmers receive for their product as a whole.
“I am writing to add our voice to those you heard in New England in saying our current system is outdated,” the Commissioner said. “In fact, the current system devalues fresh, locally produced milk by directly connecting its price to the value of manufactured products, which primarily compete in a national and international market.”
If implemented immediately and at the suggested level of $18.50, establishing a Class I floor could help ensure farmers a reasonable and more stable milk price that more fairly reflects the higher costs of production and distribution of fluid milk. In New York, that could mean an extra $15.5 million per month for dairy farmers and the potential of $465 million annually for the upstate economy when one includes the economic multiplier effect of milk production in New York State.
The Commissioner added, “While it may be challenging to sift through the many options and diverse opinions from the dairy industry, the fact remains that doing nothing is in fact a choice – and one that will have potentially disastrous consequences on the nation’s dairy farmers. I ask you to consider establishing a floor for the price of fluid milk immediately in order to ensure a fresh local food supply for our consumers at home, and appropriately compensate those farmers who produce it.”
Class I fluid milk is the most perishable of all dairy products and one that is usually consumed within a couple hundred miles of where it was produced and within several days of when it was processed. As an essential staple for most households, it is one of the least price sensitive dairy products on the market and offers the greatest potential for a stable pricing base for milk.
New York belongs to a region that produces more than 20 percent of the nation’s total milk supply. The northeast, consisting of New England, New York, New Jersey and Pennsylvania, also has the highest Class I utilization by volume and, outside of the southeast region of the country, the highest rate of Class I utilization. This means northeast farmers are subject to greater production, balancing and transportation costs to fulfill urban fluid markets than farmers in other parts of the country whose milk primarily goes directly to manufacturing plants.
The dairy price collapse of 2009 was one of the worst in decades, resulting in unprecedented losses for producers. In New York, the average blend price for the year was $12.26 per hundredweight, down from $17.87 in 2008, and well below the cost of production. As a result, many dairy farmers incurred losses of around $5.50 per hundredweight which translates into about $100 per cow per month. For an average size dairy farm in New York, approximately 100 cows, the monthly loss was $10,000 per month.
Based on our analysis for the January – September 2009 period, flooring the Class I mover at $18.50 per hundredweight, would have resulted in a blend price of about $14.91. This would have increased the price paid to producers $3.34 per hundredweight during this period. While not enough to break even, it would have dramatically lessened the impact of the overall milk price decline and consumers would have avoided price fluctuations experienced at the marketplace.
The economic impact of New York’s dairy industry is over $10 billion in New York State, and $50 billion regionally. New York has 6,200 dairy farmers with an average herd size of about 100 cows. Studies have shown that one dairy cow generates around $15,000 in economic activity that is typically spent locally benefiting feed suppliers, equipment dealers, and small businesses in upstate, rural communities.
Letter to USDA Secretary Vilsack regarding Class I Pricing
2010 Press Releases