Federal Milk Marketing Order Pooling Provisions 

The Federal Milk Marketing Orders include provisions to attract an adequate milk supply to meet 

consumer fluid milk needs. The provisions in the Appalachian and Southeast orders include pooling 

standards, Class I differentials and a Transportation Credit Balancing Fund. 

Federal milk orders specify the criteria that determine how producers, producer milk and milk handlers are 

able to participate in the market-wide pool. Market-wide pooling is how dairy farmers share in the benefits 

arising from the classified pricing of milk. 

A pool plant is a plant qualified to participate in a Federal milk order market-wide pool. Pooling standards 

for plants are tailored to a specific marketing area and therefore can vary across Federal orders. Fully 

regulated pool plants are subject to all the provisions of a Federal order. Pool distributing plants qualify 

based on the distribution of Class I packaged milk sales in the marketing area. Pool supply plants qualify 

based on the shipments of milk to pool distributing plants for Class I use. A pool plant contributes to or 

draws monetary value from the market-wide pool depending on how it uses the producer milk it receives. 
A producer qualifies to participate in a Federal order pool by delivering milk to a pool plant. The specific 

producer standards for delivering milk to a pool plant vary by Federal order. Producer delivery 

requirements (touch base) establish the requirements for producer delivery to pool plants for allowing 

the pooling of diverted milk (i.e. which producers share in the pool). Diversion limit percentages specify 

the maximum volume of milk that may be delivered to a non-pool plant by handler and still be pooled and 

priced under the qualifying order (i.e. what milk shares in the pool). The diversion limits are significantly

stricter in Federal Orders 5,6, and 7 compared to the other orders. The Upper Midwest and Southwest 

orders have similar volumes of Class I pounds as the Appalachian and Southeast orders, but they have

significantly lower Class I utilization percentages.
A diversion is a direct delivery of milk from a farm to a non-pool plant that can still remain pooled and 

priced under the qualifying order. Allowing for diversions to participate in the market-wide pool reflects 

the need for a greater supply than the market’s fluid milk demand due to the daily and seasonal 

variations in the supply and demand and balancing needs of the market. They are used by pool plant 

operators and cooperatives acting as handlers to attract an adequate milk supply to meet Class I needs.

Diversions facilitate the orderly and efficient disposition of milk when the milk is not needed at a pool 

distributing plant. 
Pool Plants and Total Market Utilization

The graphs below illustrate the 2017 annual average class utilization of producer milk at regulated pool 

plants and the total market for Federal Orders 5 and 7. The Class I utilization at pool plants in both orders 

is 80 percent, while the total market average is 69 percent.
Non-Pool Plant Deliveries

In 2017, approximately 85 percent of the total producer milk pooled on Federal Order 5 was received at 

pool plants, while the remaining 15 percent was delivered to non-pool plants (diversions). Over a fourth of 

all diversions were delivered to non-pool plants located in the Appalachian Marketing Area. Another 5 

percent was delivered to non-pool plants located in the Southeast Marketing Area. Deliveries to non-pool 

plants located in the Northeast and Mideast Marketing areas represented 32 percent and 22 percent,

respectively, of the total volume of diversions.

Pool plant deliveries represented 83 percent of the total producer milk pooled on Federal Order 7, while 

the remaining 17 percent was delivered to non-pool plants (diversions). Almost 60 percent of all diversions 

in Federal Order 7 were delivered to non-pool plants located in the Federal Order 7 marketing area. 

Deliveries to non-pool plants located in Southwest Marketing area represented 26 percent of the total

volume of diversions in 2017. 
The graph below includes the total volume of diverted milk (delivered to non-pool plants) by month from 

January 2004 to April 2018 for both orders. The Secretary of Agriculture has issued two separate decisions 

that have reduced the maximum allowable diversions on Federal Orders 5 and 7. Effective December 2006,

diversions could no longer be applied to milk requesting a transportation credit payment. Effective May

2008, diversion limits were reduced to the current levels in both orders to 35 percent in March – June and 

December and 25 percent in the other months. Since the implementation of these change, the total 

volume of diverted milk pooled on both orders has decline. 
The following graphs illustrate the total diversion percentages of the market in relation to the limit for any 

given month. Since 2015, the average market diversion percentage in Federal Order 5 was 15.8 percent for 

months with a 25 percent diversion limit and 21.9 percent for months with a 35 percent diversion limit. 

The diversion limit percentage applies to the total pool plant deliveries less any volume of milk requesting a 

transportation credit payment.
Seasonality of Supply and Demand

The seasonality of milk production and fluid milk demand can create hardship on the handlers balancing 

the market, especially in a deficit market. Milk production is greater in the spring months and declines in 

the late summer/early fall months. The lowest period of milk production is when schools are opening and 

fluid milk demand is increasing. The seasonality swings in milk production tend to be greater in the 

Appalachian and Southeast orders relative to other parts of the United States.

The graph below illustrates the seasonality issues faced by those handlers supplying Federal Order 5 pool 

distributing plants. The blue line represents the daily average producer milk receipts received at pool 

distributing plants by month during the years of 2011-2017. The green line represents the daily average

producer milk produced and pooled in the Federal Order 5 marketing area. The difference between the

two represents the volume of milk that needs to be delivered from outside the Federal Order 5 marketing 

area to meet pool distributing plant demand, referenced as “deficit” in the graph (red bars). The dash line 

for each data set represents the trend line, which indicates the general direction of the data over time. For 

example, the trend line for in-area production is sloping upward, illustrating the in-area production in

Federal Order 5 is increasing over the time period represented in the graph.

*Daily averages are used to reduce the impact of the number of days in a given month.
The graphs below are comparing the daily average pool distributing plant demand to the in-area production

on a monthly basis for the last three years. The blue line represents the daily average producer milk

receipts received at pool distributing plants by month during the years of 2015-2017. The green line

represents the daily average producer milk produced and pooled in the representative marketing area. The 

difference between the two represents the volume of milk that needs to be delivered from outside the 

marketing area to meet pool distributing plant demand. 

For Federal Order 5, the average daily “deficit” during the time period was 3.8 million pounds. The least 

“deficit” month was May at 2.6 million pounds per day (82 million pounds monthly), while the most 

“deficit” month was August at 4.8 million pounds (148 million pounds monthly). 

The in-area milk production of Federal Order 5 decreased 15.6 percent from its highest level in April to the 

lowest in September. 
For Federal Order 7, the average daily “deficit” during the time period was 3.0 million pounds. The least 

“deficit” month was May at 1.0 million pounds per day, while the most “deficit” month was September at 

4.6 million pounds. 

The in-area milk production of Federal Order 7 decreased 35.6 percent from its highest level in April to the 

lowest in September. 

Pool distributing plant demand increases in August due to the increased demand for fluid milk with the 

beginning of the school year. This occurs at the same time, the in-area production is declining. The need for 

additional milk from outside the marketing area is significantly greater from August through October.
The pool distributing plants of Federal Order 5 on average demanded 12.6 million pounds of milk daily in

both the months of April and September. Due to the seasonality of milk production in the marketing area,

the in-area producers that delivered 9.6 million pounds to pool distributing plants in April delivered 8.1 

million pounds in September. Applying this seasonality to the total 12.6 million pounds needed daily by 

pool distributing plants in September, the milk supply would need to be 14.9 million pounds per day in

April, or 2.3 million pounds more per day than the demand of all pool distributing plants.

Federal Order 7, with its higher level of seasonality swings in milk production (see previous graph), requires

even a larger quantity of reserve supply to meet the Class I demands of the market in the late summer and

early fall months.

This graph illustrates the need for a reserve supply to meet fluid milk demand and a justification to allow

diversions to participate in the market-wide pool. 
Daily Variation in Pool Distributing Plant Receipts 

The data below is the producer milk receipts at all pool distributing plants for each day in March 2018. Pool 

distributing plant demand can vary significantly based on the day of the week. The lowest demand days at

the plants are over the weekend. The difference in the high demand day to the low demand day

represented a 20 percent swing in both marketing areas. When milk is not needed at pool plants, it must 

be delivered to non-pool plants.
Class I Differentials

The higher Class I differentials in the Appalachian and Southeast orders reflect the increased costs to 

supply the Class I market in these areas. The higher Class I utilization and differential levels result in higher 

uniform prices. The Class I differentials represent over 13 percent of the uniform price in the Appalachian

(FO 5) and Southeast (FO 7) orders and over 24 percent of the uniform price in the Florida (FO 6) order,

significantly higher than the remaining orders.

The market average Class I differential in 2017 was $3.16 per cwt. for FO 5, $5.59 per cwt. for FO 6, and 

$3.28 per cwt. for FO 7. The class I differentials were increased in the Appalachian, Florida, and Southeast 

orders based on an USDA decision, effective May 2008.
Transportation Credit Balancing Fund

The Transportation Credit Balancing Fund was implemented to reimburse handlers for the increased need 

for supplemental milk by pool distributing plants during July through February (as seen in previous 

graphs). It is a separate fund from the Producer Settlement Fund and funded by an assessment paid by 

handlers on Class I milk. Diversions are not able to be applied to milk that requests a transportation credit 

payment. Requests for payments from the funds have decreased in recent years, especially in Federal 

Order 5.