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Mr. Bruce Summers

Administrator

Agricultural Marketing Service

United States Department of Agriculture 

1400 Independence Avenue, SW 

Washington, D.C. 20250

Re: Request for Proposals for Consideration in a Rulemaking Proceeding to Amend all Federal Milk 

Marketing Orders

Dear Administrator Summers:

Edge Dairy Farmer Cooperative is the third-largest dairy cooperative by milk volume in the United States, 

representing over 850 farms of various sizes across nine states with 34 different processors. Unlike most 

cooperatives or processors, the milk produced by our members is used in a broad spectrum of products 

across a range of processors in a predominantly strong cheese-making region of the country. 

As we expressed in our letter to Secretary Vilsack on June 1, our farmers contend that any national milk 

pricing reform hearing must be comprehensive in its scope and provide each order with renewed relevance. 

While recent attempts to achieve more all-inclusive reform have been submitted, we believe enabling 

legislation should be pursued first to give each order more options.

There is no imminent crisis that presents a compelling reason to initiate the hearing before the next farm 

bill is enacted and a mandatory cost of processing survey is executed. 

From our perspective, the highlights of the current state of the dairy market are:

• The primary objective of the Federal Milk Marketing Orders (FMMOs) is to secure an abundant 

supply of milk for beverage milk products. As of June 2023, markets are down, and plants 

nationwide are operating at capacity. There are abundant fluid milk supplies on store shelves in 

all regions, with no credible forecasts about shortages of beverage milk in the next few years. 

• Despite all the talk about downward biased make allowances, the next round of an investment 

cycle in cheese manufacturing is in full swing, with 4-6 new cheese plants expected to be 

commissioned by mid-2025, increasing daily milk intake by approximately 30 million pounds (11 

billion pounds of milk per year). 

• FMMO class prices will likely be what producers get paid in the future, as structural changes in 

farm size make it less likely that over-order premiums will recover after the FMMO reform. 

Enacting higher make allowances in 2025, just as a new wave of dairy plants come online, may 

provoke an exodus of family dairy farms. 

• Due to the current review and reauthorization of the farm bill, Edge is concerned that holding a 

comprehensive federal milk marketing order reform hearing is premature and a waste of current 

U.S. Department of Agriculture (USDA) resources. Because the farm bill negotiations and 

reauthorization may adjust USDA’s Section 608c authority over milk marketing orders and 
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require a subsequent federal order hearing, we believe that the cost and time associated with 

holding a federal order hearing would be a waste of limited agency resources if the farm bill 

requires subsequent changes and mandates related to the areas raised by the current order reform 

petitions submitted to the Department. 

The farm bill could finish in months with the debt ceiling discussion behind us. It seems to us that it would 

be prudent to hold the hearing after the true cost of manufacturing yields and efficiency parameters are 

surveyed based on the anticipated new legislative mandates. To reiterate, a comprehensive hearing is 

warranted, but the optimal timing is not today, but after a farm bill is enacted, anticipating that some of 

the provisions that cannot be addressed within a hearing today would be altered.

That said, if USDA were to decide that a hearing is warranted in 2023, we believe at least four proposals 

should be considered to help achieve the objective set by the Agriculture Secretary of industry consensus 

and creating more orderly marketing:

1. Transparency in Producer Milk Checks

2. Reduce Incentives to Depool by Using Announced Prices in the Calculation of Class I Mover

3. Alignment of Make Allowance Updates with Dairy Risk Management Tools

4. Full Review of Manufacturing Yields and Efficiency Parameters in Class Pricing Formulas

Proposal 1: Transparency in Producer Milk Checks

If the Agriculture Secretary decides to call a hearing pursuant to 7 C.F.R. 900.1, et seq., Edge requests the 

following amendment to order formulation language: 

Amend 7 C.F.R. § 10__.73(f) (for example, 7 C.F.R § 1030.73(f) of the Upper Midwest Marketing 

Area order) and equivalent provisions in other marketing orders to provide: 

§10__.73 Payments to producers and to cooperative associations.

[...]

(f) In making payments to producers pursuant to this section, each handler shall furnish each producer, 

except a producer whose milk was received from a cooperative association handler described in § 

1000.9(a) or (c), a supporting statement in a form that may be retained by the recipient which shall show: 

(1) The name, address, Grade A identifier assigned by a duly constituted regulatory agency, and 

payroll number of the producer; 

(2) The daily and total pounds, and the month and dates such, separately for pooled producer

milk and other milk was received from that producer; 

(3) The total pounds of butterfat, protein, and other solids contained, separately, in pooled 

producer milk and the other milk received from that producer; 

(4) The somatic cell count, separately, of the pooled producer milk and other milk received

from that producer’s milk; 

(5) The minimum rate or rates at which payment to the producer is required pursuant to the order 

in this part:
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[for multiple component orders]: including butterfat price per 1000.50(l), protein

price per 1000.50(n), other solids price per 1000.50(o), somatic cell adjustment per 

1000.50(p), and producer price differential adjusted pursuant to 10__.75

[for skim-fat orders]: including the uniform butterfat price per 10__.61(a), uniform skim 

milk price per 10__.61(b), and plant location adjustment pursuant to 10__.75; and 

(6) The rate used in making payment if the rate is other than the applicable minimum

rate; 

(7) The amount, or rate per hundredweight, or rate per pound of component, and the nature of 

each deduction claimed by the handler; and 

(8) The net amount of payment to the producer or cooperative association.

Amend 7 C.F.R. § 10__.13(f) and equivalent provisions in other marketing orders to provide: 

(5) To qualify producer milk not pooled in the previous period under this paragraph, the handler 

must demonstrate that during the period while the milk was not pooled, and no longer than the 

previous twelve calendar months, producer milk payment statements have reported total milk 

pounds pooled on the order were zero. 

Answers to §900.22 Questions

(a) Explain the proposal. What is the disorderly marketing condition that the proposal is intended to 

address?

Since the negative producer price differentials (PPDs) of 2019, many dairy producers have come to 

question the FMMO rules regarding depooling, and their impact on fair distribution of dairy products 

value between dairy producers and dairy processors. In the spring of 2020, USDA Farmers to Families 

Food Box program increased Class III prices rapidly, inducing a negative PPD. Consequently, in most 

marketing orders, Class III handlers depooled upwards of 80% of their milk. With few exceptions, dairy 

producers have no idea whether their farm is pooled or depooled. This made it easy for some handlers to 

still report the full negative PPD on milk checks, despite not having to pay that amount to the pool. 

Negative PPDs, combined with lack of transparency regarding the farm’s pooling status, and misuse of 

the PPD line item on the milk check, corroded dairy producers’ trust in the FMMO system. In our opinion, 

this constitutes disorderly marketing conditions. To address this issue, Edge requests that for all pooled 

producers, the handlers must report on their milk check the following information:

a) Name of the Federal Milk Order on which the producer’s milk is pooled

b) Announced Protein Price

c) Announced Butterfat Price

d) Announced Other Solids Price

e) Producer Price Differential, where applicable

f) Statistical Uniform Price at Producer Component Tests and adjusted for location

g) Producer milk pounds pooled on the order during the reporting period

In orders where producers are not paid based on protein and other solids tests, the requirements (b), (d) 

and (f) would be waived. 
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Further, we request that handers for re-pooling milk that was not pooled in a defined prior period be 

required to include on the milk check information making clear that the milk was not pooled on the order. 

(b) What is the purpose of the proposal?

The purpose of the proposal is to address and avoid the disorderly marketing conditions described above. 

If implemented, these rules would require all pooled handlers to clearly present elements of the FMMO 

minimum regulated payment, and producers would be able to identify if their farm is pooled or not, and –

if not pooled – whether they are still being assessed negative producer price differential, as if their farm 

is still pooled. This greater transparency regarding pooling of milk will also allow producers to better 

understand how their product is used and determine whether there is an unfair deduction to their milk 

check. 

(c) Describe the current Federal order requirements or industry practices relative to the proposal.

The current FMMO requirements are provided in § 1000.73(f). Industry practices vary from handler to 

handler. While some handlers have taken commendable steps in recent years to promote understandability 

of their milk checks, many dairy producers still feel they cannot properly understand their milk check. 

(d) Describe the expected impact on the industry, including on producers and handlers, and on consumers. 

Explain/Quantify.

If this proposal is accepted, producers would be better able to understand their milk checks. Processors 

would have a one-time cost to modify accounting systems to report the information required by modified 

1000.73(f). We do not anticipate this change would either decrease or reduce the milk price paid to 

producers. This proposal does not impact consumers. 

(e) What are the expected effects on small businesses as defined by the Regulatory Flexibility Act (5 U.S.C. 

601–612)? Explain/Quantify.

Handlers which qualify as small businesses would need to update their accounting systems to report the 

required information.

(f) How would adoption of the proposal increase or decrease costs to producers, handlers, others in the 

marketing chain, consumers, the Market Administrator offices and/or the Secretary? Explain/Quantify.

We do not anticipate significant change in costs to any of the listed groups. There will be some nominal 

costs for handlers to update their accounting systems to ensure the required information is included on 

producer milk checks. 

(g) Would a pre-hearing information session be helpful to explain the proposal?
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This proposal is submitted in response to the request for additional proposals, and ahead of the already 

scheduled pre-hearing information session. 

Proposal 2: Reduce Incentives to Depool by Using Announced Prices in the Calculation of Class I 

Mover

Edge also requests that should the Agriculture Secretary decide to call a hearing pursuant to 7 C.F.R. § 

900.1., that Class I skim milk price be amended with either of the following two variants presented below: 

Option 1: Class III+ 

Amend 7 C.F.R. § 1000.50: 

(b) Class I skim milk price. The Class I skim milk price per hundredweight shall be the adjusted Class I 

differential specified in § 1000.52, plus the adjustment to Class I prices specified in 

§ 1005.51(b), 1006.51(b) and 1007.51(b) of this chapter, plus the simple average of the advanced pricing 

factors Class III skim milk price computed in paragraph (q)(1) (i) and (2) of this section rounded to the 

nearest cent, plus $0.74 per hundredweight the adjustment to Class I skim milk price computed in 

paragraph (q)(3) of this section.

(c) Class I butterfat price. The Class I butterfat price per pound shall be the adjusted Class I differential 

specified in § 1000.52 divided by 100, plus the adjustments to Class I prices specified in § 1005.51(b), 

1006.51(b) and 1007.51(b) divided by 100, plus the advanced butterfat price computed in paragraph 

(q)(3) (l) of this section.

(e) Class II skim milk price. The Class II skim milk price per hundredweight shall be the advanced Class 

IV skim milk price computed in paragraph (q)(2) (k) of this section plus 70 cents.

(q) Advanced pricing factors. For the purpose of computing the Class I skim milk price, the Class II skim 

milk price, the Class II nonfat solids price, and the Class I butterfat price for the following month, the 

following pricing factors shall be computed using the weighted average of the 2 most recent NASS U.S. 

average weekly survey prices announced before the 24th day of the month by:

(1) An advanced Class III skim milk price per hundredweight, rounded to the nearest cent, shall be 

computed as follows: (i) Following the procedure set forth in paragraphs (n) and (o) of this section, but 

using the weighted average of the 2 most recent NASS AMS U.S. average weekly survey prices 

announced before the 24th day of the month, compute a protein price and an other solids price; (ii) 

Multiply the protein price computed in paragraph (q)(1)(i) of this section by 3.1; (iii) Multiply the other 

solids price per pound computed in paragraph (q)(1)(i) of this section by 5.9; and (iv) Add the amounts 

computed in paragraphs (q)(1)(ii) and (iii) of this section. 

(2) An advanced Class IV skim milk price per hundredweight, rounded to the nearest cent, shall be 

computed as follows: (i) Following the procedure set forth in paragraph (m) of this section, but using 

the weighted average of the 2 most recent NASS AMS U.S. average weekly survey prices announced 

before the 24th day of the month, compute a nonfat solids price; (ii) Multiply the nonfat solids price 

computed in paragraph (q)(2)(i) of this section by 9.
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(3) An advanced butterfat price per pound rounded to the nearest one-hundredth cent, shall be 

calculated by computing a weighted average of the 2 most recent U.S. average NASS AA Butter 

survey prices announced before the 24th day of the month, subtracting 17.15 cents from this average, 

and multiplying the result by 1.211. Class I skim milk will be adjusted by an amount equal to the

monthly difference between the higher-of advanced Class III skim milk price and advanced 

Class IV skim milk price as computed in paragraphs q(1) and (2) of this section, and the Class 

III skim milk price as computed in paragraph (i) of this section, 36-month average from August 

of four years prior to July of the previous year and rounded to the nearest cent.

Option 2: Higher-of using announced skim milk prices

Amend 7 C.F.R. § 1000.50: 

(b) Class I skim milk price. The Class I skim milk price per hundredweight shall be the adjusted Class I 

differential specified in § 1000.52, plus the adjustment to Class I prices specified in 

§§ 1005.51(b), 1006.51(b) and 1007.51(b) of this chapter, plus the simple average higher-of the advanced

pricing factors Class III skim milk price and Class IV skim milk price computed in paragraphs (q)(1)

(i) and (k) (2) of this section rounded to the nearest cent, plus $0.74 per hundredweight.

(c) Class I butterfat price. The Class I butterfat price per pound shall be the adjusted Class I differential 

specified in § 1000.52 divided by 100, plus the adjustments to Class I prices specified in § 1005.51(b), 

1006.51(b) and 1007.51(b) divided by 100, plus the advanced butterfat price computed in paragraph 

(q)(3) (l) of this section.

(e) Class II skim milk price. The Class II skim milk price per hundredweight shall be the advanced Class 

IV skim milk price computed in paragraph (q)(2) (k) of this section plus 70 cents.

(q) Advanced pricing factors. For the purpose of computing the Class I skim milk price, the Class II skim 

milk price, the Class II nonfat solids price, and the Class I butterfat price for the following month, the 

following pricing factors shall be computed using the weighted average of the 2 most recent NASS U.S. 

average weekly survey prices announced before the 24th day of the month:

(1) An advanced Class III skim milk price per hundredweight, rounded to the nearest cent, shall be 

computed as follows:

(i) Following the procedure set forth in paragraphs (n) and (o) of this section, but using the weighted 

average of the 2 most recent NASS U.S. average weekly survey prices announced before the 24th 

day of the month, compute a protein price and an other solids price;

(ii) Multiply the protein price computed in paragraph (q)(1)(i) of this section by 3.1;

(iii) Multiply the other solids price per pound computed in paragraph (q)(1)(i) of this section by 5.9; 

and

(iv) Add the amounts computed in paragraphs (q)(1)(ii) and (iii) of this section.
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(2) An advanced Class IV skim milk price per hundredweight, rounded to the nearest cent, shall be 

computed as follows:

(i) Following the procedure set forth in paragraph (m) of this section, but using the weighted average 

of the 2 most recent NASS U.S. average weekly survey prices announced before the 24th day of the 

month, compute a nonfat solids price; and

(ii) Multiply the nonfat solids price computed in paragraph (q)(2)(i) of this section by 9.

(3) An advanced butterfat price per pound rounded to the nearest one-hundredth cent, shall be calculated 

by computing a weighted average of the 2 most recent U.S. average NASS AA Butter survey prices 

announced before the 24th day of the month, subtracting 17.15 cents from this average, and multiplying 

the result by 1.211.

Answers to §900.22 Questions

(a) Explain the proposal. What is the disorderly marketing condition that the proposal is intended to 

address?

CME futures markets have grown considerably since the last FMMO reform. In the year 2001, the average 

open interest in Class III futures markets was roughly 12,000 contracts. By 2022, that figure increased 

2.5-fold to 30,000 contracts. Average daily volume in the year 2022 was 1,313 contracts, over four times 

bigger than the average daily volume in the year 2001 with 324 contracts. 

A justification for the use of advanced prices is that beverage milk product manufacturers must provide 

pricing to retail customers before the start of the month. This practice is not substantially different than 

the need for dairy product manufacturers to provide forward prices to overseas buyers of cheese, skim 

milk powder or whey protein concentrates. 

Bozic and Wolf (2022) analyzed the impact of the market rallies after the advanced prices are released on 

PPDs. Figure 2 from their paper, reprinted below, illustrates the impact on the Southwest FMMO. 
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When announced (final) prices exceed advanced prices, PPDs are reduced and may become negative. 

Upper Midwest FO experienced 33 months of negative PPDs from January 2000 through May 2019. In 

29 of those months with negative PPDs, maximum higher-of announced prices were greater than the 

maximum higher-of advanced prices. Negative PPDs induce depooling. Therefore, the use of advanced 

prices creates disorderly marketing conditions.

To eliminate this source of depooling and disorderly marketing conditions, Edge requests that final 

(announced) prices be used for determining Class I handlers’ obligations to the pool. 

(b) What is the purpose of the proposal?

The purpose of the proposal is to address disorderly marketing conditions described above, i.e., depooling 

induced by market rallies after advanced prices have been published. 

(c) Describe the current Federal order requirements or industry practices relative to the proposal.

The current FMMO requirements are provided in 7 CFR § 1000.50. The use of advanced prices is reducing 

competition among beverage milk product manufacturers and retailers by providing transparency and 

certainty regarding the input price (i.e., raw milk) costs. 

(d) Describe the expected impact on the industry, including on producers and handlers, and on consumers. 

Explain/Quantify.

Option 1 – “Class III Plus” bases the Class I mover solely on Class III skim milk price, plus an adjuster 

that would keep the mover revenue-neutral vs. the traditional higher-of approach. The benefits of this 

option are severalfold: 

a) Historically, Class III skim price is likely to be higher than Class IV skim milk price. Since 2000, 

Class III skim milk price was higher than Class IV skim milk price in 166 out of 281 months 

(59%).

b) Butter/powder facilities are typically used for market balancing, and cheese plants typically 

operate at full capacity year-round. As such, positive demand shock is likely to increase Class III 

prices more dramatically than Class IV prices. The highest historical spread between Class III and 

Class IV skim prices is $11.17, and the historical minimum spread is -$4.98. 

c) Class III futures markets are the most liquid dairy futures markets, and no further innovation on 

CME would be necessary to facilitate effective risk management by Class I handlers. In 2022, 

average open interest and volume was 30,000 and 1,313 respectively for Class III futures, and 

13,200 and 112 respectively for Class IV futures.

d) The mechanism for resetting the adjuster annually would guarantee revenue-neutrality vs. the 

higher-of approach. The adjuster would, by definition, always be non-negative. Since Class IV 

prices tend to be higher than Class III prices when the overall dairy market is tight and prices are 

high, this approach would also smooth Class I prices over time, providing the dairy consumer with 

some respite in periods of above-average market prices. 
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The calculation of the proposed Class I Skim Milk Adjuster for calendar year 2023 is illustrated in the 

table below: 

Month Advanced 

Class III 

Skim Milk 

Pricing 

Factor

Advanced 

Class IV Skim 

Milk Pricing 

Factor

Higher-Of 

Advanced Skim 

Milk Pricing 

Factors

Class III 

Skim 

Milk 

Price

Monthly 

Difference

8/1/2019 8.27 7.87 8.27 8.60 -0.33

9/1/2019 8.49 7.76 8.49 9.91 -1.42

10/1/2019 9.26 7.84 9.26 10.68 -1.42

11/1/2019 10.42 8.32 10.42 12.78 -2.36

12/1/2019 13.01 8.73 13.01 12.11 0.90

1/1/2020 12.65 9.28 12.65 10.01 2.64

2/1/2020 9.90 9.54 9.90 10.43 -0.53

3/1/2020 10.47 9.68 10.47 9.88 0.59

4/1/2020 10.04 8.85 10.04 8.75 1.29

5/1/2020 8.93 7.03 8.93 7.59 1.34

6/1/2020 6.68 5.99 6.68 15.06 -8.38

7/1/2020 13.29 6.46 13.29 18.33 -5.04

8/1/2020 18.08 7.12 18.08 14.58 3.50

9/1/2020 17.43 7.13 17.43 11.25 6.18

10/1/2020 11.01 7.45 11.01 16.45 -5.44

11/1/2020 16.07 8.00 16.07 18.55 -2.48

12/1/2020 20.07 8.21 20.07 10.71 9.36

1/1/2021 10.25 8.33 10.25 10.99 -0.74

2/1/2021 10.68 8.57 10.68 11.11 -0.43

3/1/2021 11.10 8.66 11.10 10.51 0.59

4/1/2021 10.19 8.33 10.19 11.24 -1.05

5/1/2021 10.75 8.88 10.75 12.45 -1.70

6/1/2021 12.73 9.42 12.73 10.71 2.02

7/1/2021 10.59 9.83 10.59 10.20 0.39

8/1/2021 10.04 9.67 10.04 9.82 0.22

9/1/2021 9.68 9.75 9.75 10.10 -0.35

10/1/2021 9.90 9.93 9.93 11.44 -1.51

11/1/2021 11.45 10.53 11.45 10.87 0.58

12/1/2021 11.40 11.52 11.52 10.71 0.81

1/1/2022 10.73 12.21 12.21 10.40 1.81

2/1/2022 10.43 12.97 12.97 10.71 2.26
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3/1/2022 10.59 13.71 13.71 12.04 1.67

4/1/2022 11.97 14.51 14.51 13.90 0.61

5/1/2022 13.68 14.82 14.82 14.86 -0.04

6/1/2022 15.04 14.80 15.04 13.13 1.91

7/1/2022 13.07 14.72 14.72 11.15 3.57

36-Month Difference, to be used as Class I Skim Milk Adjuster for 2023: $0.25

Option 2 – “Higher-of using announced skim milk prices” is very similar to the traditional higher-of 

approach. The only change is that instead of advanced pricing factors, final butterfat and skim milk prices 

are used. Since the Base Class I price would always be equal to either Class III or Class IV milk price, 

Class I handlers would be able to effectively manage risk exposure either using Class III and IV milk 

futures or using over the counter (OTC) risk management offers. We anticipate that CME Group would 

consider creating a Class I milk contract which would settle on the higher-of Class III and Class IV futures 

contracts. If advanced pricing is abandoned, then the introduction of a new Class I futures contract would 

be much easier than under the previous higher-of regime. Arbitrage relationship between Class I futures 

and Class III and IV futures would ensure that liquidity is not splintered. 

(e) What are the expected effects on small businesses as defined by the Regulatory Flexibility Act (5 U.S.C. 

601–612)? Explain/Quantify.

Small processors of beverage milk markets would have to set up risk management programs, if processors 

have not already created them, to avoid the negative impacts of the price acceleration effect, i.e., the rallies 

during the reporting month. 

(f) How would adoption of the proposal increase or decrease costs to producers, handlers, others in the 

marketing chain, consumers, the Market Administrator offices and/or the Secretary? Explain/Quantify.

Handlers would have one less reason to depool milk. Producers would benefit from less depooling. The 

removal of the smoothing effect provided by advanced prices would be compensated for through higher 

payments by the Dairy Margin Coverage (DMC) program. The changes are designed to be revenue neutral 

so producers, handlers and consumers should not see a long-term increase or reduction in revenue or cost. 

(g) Would a pre-hearing information session be helpful to explain the proposal?

This proposal is submitted in response to the request for additional proposals, and ahead of the already 

scheduled pre-hearing information session. 

Proposal 3: Alignment of Make Allowance Updates with Dairy Risk Management Tools

Edge requests that any changes to make allowances, standard component tests or any other parameter that 

affects the calculation of component values or Class III or Class IV milk prices be announced no later than 
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Sep. 15 for the second forthcoming calendar year. For example, USDA would announce no later than Sep. 

15, 2024, the FMMO pricing formulas in effect for calendar year 20261. If USDA would wish to initiate 

the pricing parameter change for a date that is not Jan. 1, we propose that the announcement be made no 

later than the 15th of the month preceding the implementation date by more than 15 months (5 calendar 

quarters). 

Answers to §900.22 Questions

(a) Explain the proposal. What is the disorderly marketing condition that the proposal is intended to 

address?

Submitted proposals by the National Milk Producers Federation (NMPF) and International Dairy Foods 

Association (IDFA) request that the make allowance increases be enacted as soon as possible. IDFA 

requests much higher make allowances and proposes that half of the difference be implemented as soon 

as feasible, and the remainder over several years. 

Edge requests that any change to make allowances be conditioned and preceded by a mandatory survey 

of dairy processing costs including manufacturing yields and efficiency parameters. However, if USDA 

decides to proceed with the hearing and establishing new make allowances, it is of paramount importance 

to preserve the viability of risk management tools used by dairy producers. 

CME Group lists monthly dairy futures contracts for 24 consecutive months. The number of outstanding 

contracts is called the open interest. Open interest on June 1, 2023, was 30,045 contracts, with positive 

open interest as far out as December 2024. Market participants on futures markets include hedgers, 

speculators and arbitragers. Dairy producers tend to hedge by selling Class III and Class IV milk futures 

or buying put options in those contracts. Buyers of dairy products tend to hedge by buying Cheese, Dry 

Whey, Butter or Nonfat Dry Milk futures or call options. Every futures contract requires two parties: a 

buyer and a seller. For a dairy producer to be able to sell a futures contract, some other party must agree 

to buy it at the same price. For a dairy product buyer to be able to buy a cheese futures contract, some 

other party must agree to sell it. 

Class III price is a linear combination of Butter, Cheese and Dry Whey prices. This allows arbitragers to 

provide a bridge between markets typically used by dairy producers (Class III and IV futures) and markets 

typically used by dairy product buyers. This bridge provides much needed buy-side liquidity to milk 

futures and sell-side liquidity to dairy commodity product futures. However, this arbitrage is only possible 

if the relationship between Class III and the three products is known with certainty. Regulatory reform 

imposes uncertainty in this relationship. If make allowances are likely to increase, and if it is not known 

with certainty what the new make allowance levels will be, then no entity can engage in risk-free arbitrage 

between milk and commodity futures markets. A deleterious consequence is likely to sap liquidity in dairy 

futures markets, increasing the cost of hedging to dairy producers. 

1 DRP sales for Jan-Mar, 2026 open on September 16th 2024. 
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Furthermore, since 2018, the Dairy Revenue Protection (DRP) program has provided protection against 

downside risk to milk prices. Between 25 and 35 percent of all U.S. milk production is covered through 

DRP. As explained below, regulatory reform may lead to severe restrictions in access to DRP. 

DRP is regulated under the Federal Crop Insurance Act2. 7 C.F.R. § 1508(a) states:

To qualify for coverage under a plan of insurance, the losses of the insured commodity must be 

due to drought, flood, or other natural disaster (as determined by the Secretary).

To be in alignment with the enabling legislation, Dairy Revenue Protection policy, Section 4, stipulates3: 

This policy provides insurance only for the difference between the final revenue guarantee and 

actual milk revenue, times your actual share and protection factor, caused by natural occurrences in 

market prices and yields in your pooled production region. This policy does not insure against the death 

or other loss or destruction of your dairy cattle, or against any other loss or damage of any kind 

whatsoever.

DRP expected prices are based on CME futures prices. If futures prices may drop due to unexpected 

regulatory shock, i.e., actual make allowances being higher than expected make allowances, then DRP 

could inadvertently provide coverage against policy risk. Consequently, the legality of DRP may be 

challenged as policy risk is not a natural occurrence in market prices. Ultimately, the program may need 

to be suspended, at least for the Class Pricing Option4. In addition, Livestock Gross Margin for Dairy 

Cattle (LGM-Dairy) may also need to be suspended. 

The reduction in liquidity on CME dairy markets, and potential reduction in DRP offers due to FMMO 

regulatory changes, constitute disorderly marketing conditions.

Fortunately, it is straightforward to implement regulatory changes in a way that avoids negative spillovers 

to CME markets and Risk Management Agency (RMA) programs. As stated in the proposal, Edge requests 

that any changes to make allowances, standard component tests, or any other parameter that affects the 

calculation of component values or Class III or Class IV milk prices be announced no later than Sep. 15th

for the second forthcoming calendar year. For example, USDA would announce no later than Sep. 15, 

2024, the FMMO pricing formulas in effect for calendar year 20265. As a generalization of this rule, if 

USDA would wish to initiate the pricing parameter change for a date that is not Jan. 1st, we propose that 

the announcement be made no later than the 15th of the month preceding the implementation date by more 

than 15 months (5 calendar quarters). Frequent updates to pricing parameters are not problematic if 

sufficient advanced notice is provided. 

(b) What is the purpose of the proposal?

2 https://www.law.cornell.edu/uscode/text/7/chapter-36/subchapter-I

3 https://www.rma.usda.gov/-/media/RMA/Policies/Dairy-Revenue-Protection/2023/Dairy-Revenue-Protection-Policy-23-

DRP.ashx?la=en

4 Actual prices under the Commodity Pricing Option are based on make allowances in effect on the date when DRP 

endorsements are purchased. Only 15-25% of all DRP sales are based on Commodity Pricing Option. 

5 DRP sales for Jan-Mar, 2026 open on September 16th 2024. 
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The purpose of the proposal is to address disorderly marketing conditions described above, i.e., the 

reduction in liquidity on CME dairy markets, and potential reduction in DRP offers due to FMMO 

regulatory changes.

(c) Describe the current Federal order requirements or industry practices relative to the proposal.

USDA is not required by law to provide advanced notice of changes to FMMO pricing formulas. However, 

the increase in utilization of CME markets and RMA programs since the last national FMMO hearing 

compels us to request that such advanced notice be implemented as standard practice going forward. 

(d) Describe the expected impact on the industry, including on producers and handlers, and on consumers. 

Explain/Quantify.

If make allowances are implemented without sufficient advanced notice, CME liquidity may dramatically 

fall, and RMA may need to suspend LGM-Dairy and Class Pricing Option (Type 831) of the DRP. In 

recent years, 25-35% of U.S. milk was protected under the RMA programs, and CME markets likely cover 

another 5% of U.S. milk production. Without robust safety net, U.S. dairy producers may be less resilient 

and the dairy farm exit rate may increase. This proposal does not impact handlers or consumers. 

(e) What are the expected effects on small businesses as defined by the Regulatory Flexibility Act (5 U.S.C. 

601–612)? Explain/Quantify.

Not providing sufficient advanced notice regarding make allowances would primarily affect dairy 

producers, in the manner described above. 

(f) How would adoption of the proposal increase or decrease costs to producers, handlers, others in the 

marketing chain, consumers, the Market Administrator offices and/or the Secretary? Explain/Quantify.

Adoption of the proposal would delay make allowance updates by one year, leading to higher revenue to 

dairy producers and higher costs to dairy processors during the one-year delay.

(g) Would a pre-hearing information session be helpful to explain the proposal?

This proposal is submitted in response to the request for additional proposals, and ahead of the already 

scheduled pre-hearing information session. 

Proposal 4: Full Review of Manufacturing Yields and Efficiency Parameters in FMMO Pricing 

Formulas

Submitted proposals by the NMPF and IDFA request modifications to make allowances used to determine 

the value of milk components. Both petitions fail to address manufacturing yields and efficiency changes 

that have transpired since the FMMO formulas were last modified. Edge requests that any change to make 

allowances be conditioned and preceded by a mandatory survey of dairy processing costs, manufacturing 
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yields, and efficiency parameters. Edge requests that USDA provides publicly the results of such a survey 

before commencing any regulatory proceedings on updating FMMO pricing formulas. 

Answers to §900.22 Questions

(a) Explain the proposal. What is the disorderly marketing condition that the proposal is intended to 

address?

As a primer on the protein formula, we reprint the Technical Appendix: Van Slyke Cheese Yield Formula 

from Bozic and Mykrantz (2022)6, modified as appropriate for this purpose.

Under the current FMMO pricing system, the Class III protein price is obtained by summing the protein 

value in cheese and the butterfat adjustment, which captures the difference between the butterfat value in 

cheese versus the opportunity cost of using that butterfat in butter as shown in equation (1).

PPro

III = (⏟P Ch − 0 .2003 ) × 1 .383 

Protein Value in Cheese

+

[(⏟P Ch − 0 .2003 ) × 1 .572 

Butterfat Value in Cheese

− P⏟BF × 0 .9

Butterfat Value in Butter

] × 1⏟.17

⏟ Butterfat to Protein Ratio (3.5 / 2.9915 )

Butterfat Adjustment

(1)

Where, PPro

III is the Class III protein price, PCh is the cheese price, 0.2003 is the make allowance of cheese, 

1.383 is the cheese yield per unit of protein, PBF is the FMMO price of butterfat, 0.9 is the butterfat 

retention factor, and 1.17 is the butterfat to protein ratio in standard milk. The formula above makes strong 

assumptions regarding the butterfat retention rate (0.9), and butterfat to protein ratio (Butterfat test = 3.5, 

Protein Test = 2.9915, Butterfat/Protein = 3.5 / 2.9915 = 1.17. In addition, the yield factors 1.383 and 

1.572 are the result of Van Slyke formula which is parameterized based on further assumptions examined 

below. 

The Van Slyke cheese yield formula currently used by FMMOs is:

CY = [((fr × (Ft − FL

) + c% × Pt − cl) × y)/(1 − m%)] × (1 − L) (2)

where CY is cheese yield per hundredweight of milk, Ftis a farmgate milkfat test per hundredweight of 

milk, in lb/cwt, Ptis a farmgate true protein test per hundredweight of milk, in lb/cwt; m% is a moisture 

percentage, L denotes farm-to-plant milk losses, and FL captures farm-to-plant milkfat losses beyond L. 

Under the FMMO system, the milkfat test in standard milk, Ft, is set to 3.5, and the true protein test, Pt, 

is assumed to be 2.9915. Following the parametrization currently used by FMMO regulations, butterfat 

recovery in cheese, fr, is set at 0.90; casein percent of true protein, and c%, is assumed to be 0.822. Casein 

loss to whey, cl, is 0.1. Yield factor, y, reflects the amount of salt, retained whey proteins, milk minerals, 

etc., and is assumed to be 1.09. A moisture level, m%, of 38% is likewise used based on current formulas 

6 https://www.cambridge.org/core/journals/journal-of-agricultural-and-applied-economics/article/opportunity-cost-aneconomic-concept-that-may-improve-the-functioning-of-federal-milk-marketing-orders-and-the-us-dairyindustry/46F61ED5965700DB02AEE00A289E1FE0#supplementary-materials
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and USDA’s Agricultural Marketing Service (AMS) Dairy Product Mandatory Reporting Program survey 

definitions. Farm-to-plant milk losses, L, are 0.0025 lb/cwt, and milkfat losses, FL, are an additional 0.015 

lb./cwt.

Rewritten, the Van Slyke Cheese yield formula used by FMMOs is:

CY = [((0.90 × (3.5 − 0.015) + 0.822 × 2.9915 − 0.1) × 1.09)/(1 − 0.38)] × (1 − 0.0025)(2)

The Van Slyke cheese yield formula and the FMMO assumptions, excluding farm-to-plant losses, 

result in a theoretical cheese yield of 9.6852 pounds of cheese. Adjusting for farm-to-plant milk and 

component losses, the theoretical yield is reduced to 9.6373 (USDA 2002). The yield formula can be 

rewritten as a sum of marginal contributions by butterfat and protein. By setting Ft and FLto zero, we 

calculate the protein contribution to cheese yield to be 4.1369. Similarly, by setting Pt and clto zero, we 

calculate the butterfat contribution to cheese yield to be 5.5004. By dividing the butterfat contribution to 

cheese yield by the standard butterfat test, we obtain the marginal contribution to cheese yield per 1 lb. of 

butterfat, 5.5004 / 3.5 = 1.572. Likewise, by dividing the protein contribution to cheese yield by the 

standard protein test, we obtain the marginal contribution to cheese yield per 1 lb. of protein, 

4.1369 / 2.9915 = 1.383. Table 1 provides the decomposition of the Van Slyke cheese yield formula into 

protein and butterfat yield contributions and the derivation of coefficients used in the current FMMO 

protein price formula.

Table 1: Van Slyke Cheese Yield Formula Factors and Yield Assumptions

Symbol Description

Van Slyke

Factors

Butterfat

Portion

Protein

Portion

Butterfat recovery in cheese 0.90 0.90

Ft Standard milkfat test 3.50 3.50

Farm-to-plant (additional) milkfat 

losses 0.015 0.015

Casein percent of true protein 0.822 0.822

Casein loss to whey 0.1 0.1

Theoretical yield formula 1.09 1.09 1.09

Pt True protein test * 2.9915 2.9915

Moisture level 38% 38% 38%

L Farm-to-plant milk losses 0.0025 0.0025 0.0025

Cheese yield 9.6373 5.5004 4.1369

Cheese yield per 1 lb. of component 1.572 1.383

* The 2.9915 factor reflects the assumption that standard skim milk tests 3.1 percent true protein. 

The Van Slyke formula used for protein pricing in Federal Milk Marketing Orders should be amended to 

reflect changes in butterfat and protein tests, butterfat recovery in cheese, farm-to-plant milk and milkfat 

losses, theoretical cheese yield, casein loss to whey, and butterfat-to-protein ratio. Edge is not proposing 

specific values because Edge is not proposing modifications to make allowances until a proper survey of 

manufacturing yields and efficiency parameters and costs of processing can be conducted. Partial changes 

r

f

FL

%

c

l

c

y

m%

CY
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that only account for increased marginal costs, but not manufacturing yields and efficiency parameters are 

unfair, likely to hurt dairy producers and may substantially increase the exodus of family dairy farms.

(b) What is the purpose of the proposal?

The purpose of the proposal is to address disorderly marketing conditions where make allowances reflect 

most recent dairy processors costs, but manufacturing yields and efficiency parameters are based on 

assumptions from 20 plus years ago.

(c) Describe the current Federal order requirements or industry practices relative to the proposal.

Current FMMO protein formula reflects the Van Slyke assumptions listed above. 

(d) Describe the expected impact on the industry, including on producers and handlers, and on consumers. 

Explain/Quantify.

The impact on the protein price would depend on the relative price of cheese and butter. For example, if 

following the NMPF proposal the standard butterfat test is updated to 4.00 and standard protein test to 

3.30, that would increase the butterfat-to-protein ratio from 1.17 to 1.21. If in addition, the butterfat 

recovery rate is increased from 0.90 to 0.93, then the impact of updating these two parameters would be 

following: 

Impact of Yields and Efficiency Parameters on FMMO Protein Price

Scenario Current 

Formulas

NMPF Make 

Allowances

NMPF Make Allowance 

with Yields and Efficiency 

Parameters Updates

June 5, 2023 CME Spot:

Block cheese: $1.43

Butter: $2.40

$1.12/lb. $1.042/lb. $1.0062/lb.

2022-2023: 

Block Cheese: $2.05

Butter: $2.74

$2.68/lb. $2.606/lb. $2.6239/lb.

2020-2023: 

Block cheese: $1.96

Butter: $2.11

$3.20/lb. $3.119/lb. $3.1817/lb.

2014-2023: 

Block cheese: $1.81

Butter: $2.16

$2.65/lb. $2.572/lb. $2.6098/lb.

This proposal does not impact consumers. 

(e) What are the expected effects on small businesses as defined by the Regulatory Flexibility Act (5 U.S.C. 

601–612)? Explain/Quantify.
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Not updating Yields and Efficiency Parameters would primarily affect dairy producers, likely adversely 

in the manner described above. 

(f) How would adoption of the proposal increase or decrease costs to producers, handlers, others in the 

marketing chain, consumers, the Market Administrator offices and/or the Secretary? Explain/Quantify.

This rule does not change the price to consumers. Depending on the relative price of cheese to butter, the 

cost to processors and the revenue to producers would be either higher or lower. 

(g) Would a pre-hearing information session be helpful to explain the proposal?

This proposal is submitted in response to the request for additional proposals, and ahead of the already 

scheduled pre-hearing information session. 

Respectfully submitted,

Tim Trotter

CEO, Edge