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Via U.S. Mail and Email to

FMMOhearing@usda.gov

June 20, 2023

Ms. Dana H. Coale

USDA/AMS/Dairy Programs

U.S. Department of Agriculture

STOP-0225 Room 2530

1400 Independence Avenue, S.W.

Washington, D.C. 20250-0225

Re: Modified Petition of the International Dairy Foods Association for a Hearing to Amend

the Class I Mover in All Federal Milk Marketing Orders: IDFA’s Proposed “Floored Class

I Mover,” Proposed as an Alternative to National Milk Producers Federation Proposal 3

Dear Deputy Administrator Coale:

By letter dated May 1, 2023, the National Milk Producers Federation (“NMPF”) petitioned USDA

to conduct a hearing to consider several NMPF proposals to amend the current Federal Milk

Marketing Orders. NMPF proposal 3 proposes that the Class I mover, which is currently set at the

simple average of the Class III and Class IV advanced price plus $0.74, revert to the Class I mover

that existed prior to May 1, 2019, namely, the higher of the Class III or Class IV advanced price. In

this letter, we refer to the NMPF proposal as the “higher of Class I mover.”

By notice dated June 1, 2023, USDA indicated an intention to consider holding hearings on NMPF

proposal 3 as well as other specified proposals and invited interested parties to submit any alternative

proposals by June 14, 2023. By letter dated June 14, 2023, the International Dairy Foods Association

(“IDFA”) indicated that it had carefully examined NMPF proposal 3, and concluded that NMPF

Proposal 3 is flawed because it precludes meaningful access to risk management tools and therefore

fails to foster the purposes that lead to the Class I mover being changed to its present language on

May 1, 2019. This is because a Class I mover that shifts unpredictably between the Class III and

Class IV advanced prices is too unpredictable to allow for the hedging that is essential to modern

pricing and sale of Class I products.

IDFA indicated that it had identified, and was submitting, an alternative approach that will both

foster those purposes and address the concerns that underlie the NMPF proposal. This IDFA

alternative proposal incorporates the core concept of the NMPF “higher of” proposal but adjusts it

in a manner that: (a) preserves the purposes that led to the Class I mover being changed to its present

language on May 1, 2019, (b) encourages increased sales of Class I products, which have been in

steady decline for many years, and (c) is guaranteed to put more dollars into the pockets of dairy
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

farmers than either the current Class I mover or NMPF proposal 3. We refer to the IDFA alternative

proposal as the “Floored Class I Mover.”

USDA during the June 16, 2023 Pre-Hearing Information Session raised certain points of

clarification regarding the mechanism by which the IDFA proposal would operate. Consistent with

the schedule set by the Secretary, IDFA by this letter is modifying its Class I mover proposal so that

the amendatory language will provide greater clarity as to exactly how the Floored Class I Mover

would operate. IDFA also now provides more detailed explanations and examples of how the

Floored Class I Mover would operate, using specific data. IDFA’s proposed Floored Class I Mover

remains substantively unchanged from that set forth in its June 14, 2023 proposal, and accordingly,

IDFA’s June 14, 2023 letter’s extended discussion of the benefits of the IDFA Floored Class I Mover

remains valid.

IDFA’s modified proposal is as follows (inclusive of all proposed revisions):

Amend 7 C.F.R. § 1000.50(b) to provide as follows: (no deletions; additions appear in red font):

§ 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 computed in paragraph (q)(1) and (2) of this section rounded to the nearest

cent, plus the higher of: (a) $0.74 per hundredweight or (b) the result reached in sub-paragraph (iii)

of the following calculations:

(i) for each month in the twenty-four-month period through July of the previous calendar

year, select the higher of the advanced pricing factor computed in paragraph (q)(1) versus paragraph

(q)(2), and determine the simple average of the twenty-four factors so selected, rounded to the nearest

cent;

(ii) for each month in the twenty-four-month period through July of the previous calendar

year, calculate the simple average of the advanced pricing factors computed in paragraph (q)(1) and

(2) of this section rounded to the nearest cent, and determine the simple average of the twenty-four

factors so selected, rounded to the nearest cent; and

(iii) calculate the difference between the amount determined in (i) and the amount determined

in (ii).

DISCUSSION

We now explain further how the IDFA Floored Class I Mover would work, using January 2023 as

our first example. Like the current Class I mover, the Floored Class I Mover would begin by

calculating the average of the Class III and Class IV advance prices for January 2023. And there

would be an adder on top of that. The adder would be either $0.74, or a potentially higher adder.

The potentially higher adder is based on the following calculations, using data from the 24-month

period from August 2020 through July 2022. For each of those 24 months, (1) one first selects the

higher of the Class III or IV advanced prices, and then calculates the simply average of the 24 prices

so selected. One then (2) calculates for each of those 24 months the average of the Class III and IV

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advanced prices, and then the simple average of the 24 averages. One then determines the difference

between (1) and (2). If that difference is greater than $0.74, then that difference is the adder used,

instead of $0.74.

Actual examples for the calculations for the 2021 calendar year Floored Class I Mover and the 2023

calendar year Floored Class I Mover follow below. These two examples outline how the calculations

work when the higher-of difference is both greater than, and below, the $0.74 minimum established

under this proposal.

In Chart 1 on the following page Columns A and B are the actual Class III and Class IV advanced

prices over the 24-month period from August 2020 through July 2022. Column C is whichever of

those two advanced prices is higher each month, with the simple average of those prices set forth in

the last row. Column D is the average of the Class III and Class IV advanced prices by month, and

the simple average of those prices appears in the last row.

The simple average in Column C is $12.90, while the simple average in Column D is $11.38. The

difference is $1.52. Because $1.52 is greater than $0.74, the adder to the Class I mover for JanuaryDecember 2023 will be $1.52.

This math takes a few steps, but the result can be stated simply: dairy farmers are, through the use of

this higher adder, being “made whole” over time for the extra amounts they would have received had

the Class I mover been based upon the “higher of” the Class III or Class IV advanced price.

Furthermore, dairy farmers end up better off over time because there is no “give back” for those

years in which the Class I price would have been lower if based upon the “higher of” the Class III or

Class IV advanced price rather than the average of the Class III and Class IV advanced prices plus

$0.74. We use calendar year 2021 as an example.

Chart 2 (page 6) shows the Floored Class I Mover adjuster calculation for calendar year 2021. The

Class I mover for 2021 is determined by the time period August 2018 through July 2020. In Chart 2

below, Columns A and B below are the actual Class III and Class IV advanced prices over the 24-

month period from August 2018 through July 2020. Once again, Column C is whichever of those

two advanced prices is higher each month, with the simple average of those prices set forth in the

last row. Column D is the average of the Class III and Class IV advanced prices by month, and the

simple average of those prices appears in the last row.

The difference between Column C and Column D is $0.70. Because $0.74 is higher than $0.70, the

Floored Class I mover in all months in calendar year 2021 would be the average of the Class III and

Class IV advanced prices plus $0.74. Dairy farmers would not be required to “give back” the extra

$0.04.

In short, over time, dairy farmers will always be paid at least as much as they would have earned

under the NMPF “higher of the Class III or Class IV advanced price” proposal. But in years in which

they would receive more money if the Class I mover were based on the average of the Class III and

Class IV advanced prices plus $0.74, that is what they will be paid.

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_______________

For this reason, IDFA’s Floored Class I Mover results in a higher average price over time than either

the current Class I mover or NMPF proposal 3.

Respectfully Submitted,

Mike Brown

Chief Economist

International Dairy Foods Association

1250 H Street NW, Suite 900

Washington, DC 20005

202-737-4332

cc: Bruce Summers, Administrator, Agricultural Marketing Service, USDA

Erin Taylor, Director, Order Formulation and Enforcement Division, USDA/AMS/Dairy

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CHART 1

IDFA Proposal Example: 2023 Mover Adjuster Effective January - December 2023

Base Period for 2023

Column A

Class III

Advanced Skim

Price

Column B

Class IV Advanced

Skim Price

Column C

Higher of Class III or

Class IV Advanced

Skim Price

Column D

Simple Avg. of

Class III and Class

IV Advanced Skim

Prices

August-2018 $18.08 $7.12 $18.08 $12.60

September-2018 17.43 7.13 17.43 12.28

October-2018 11.01 7.45 11.01 9.23

November-2018 16.07 8.00 16.07 12.04

December-2018 20.07 8.21 20.07 14.14

January-2019 10.25 8.33 10.25 9.29

February-2019 10.68 8.57 10.68 9.63

March-2019 11.10 8.66 11.10 9.88

April-2019 10.19 8.33 10.19 9.26

May-2019 10.75 8.88 10.75 9.82

June-2019 12.73 9.42 12.73 11.08

July-2019 10.59 9.83 10.59 10.21

August-2019 10.04 9.67 10.04 9.86

September-2019 9.68 9.75 9.75 9.72

October-2019 9.90 9.93 9.93 9.92

November-2019 11.45 10.53 11.45 10.99

December-2019 11.40 11.52 11.52 11.46

January-2020 10.73 12.21 12.21 11.47

February-2020 10.43 12.97 12.97 11.70

March-2020 10.59 13.71 13.71 12.15

April-2020 11.97 14.51 14.51 13.24

May-2020 13.68 14.82 14.82 14.25

June-2020 15.04 14.80 15.04 14.92

July-2020 13.07 14.72 14.72 13.90

24 Month Average $12.37 $10.38 $12.90 $11.38

(Rounded to two Decimals)

Difference Between the 24 Mo. Average Higher-of III-IV and the 50:50 III-IV:

Higher-Of - Simple Average = Difference

$12.90 - $11.38 $1.52

Higher of vs. 2023 Class I Skim Mover Adjuster = Greater of: Minimum Base -orAverage of

2023 Class I Skim Mover Adjuster = Greater of: $0.74 -or- $1.52

Class I Skim Mover Adjuster for 2023 = 50:50 Advance III:IV Skim plus $1.52
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CHART 2

IDFA Proposal Example: 2023 Mover Adjuster Effective January - December 2023

Base Period for 2023

Column A

Class III

Advanced Skim

Price

Column B

Class IV Advanced

Skim Price

Column C

Higher of Class III or

Class IV Advanced

Skim Price

Column D

Simple Avg. of

Class III and Class

IV Advanced Skim

Prices

August-2018 $18.08 $7.12 $18.08 $12.60

September-2018 17.43 7.13 17.43 12.28

October-2018 11.01 7.45 11.01 9.23

November-2018 16.07 8.00 16.07 12.04

December-2018 20.07 8.21 20.07 14.14

January-2019 10.25 8.33 10.25 9.29

February-2019 10.68 8.57 10.68 9.63

March-2019 11.10 8.66 11.10 9.88

April-2019 10.19 8.33 10.19 9.26

May-2019 10.75 8.88 10.75 9.82

June-2019 12.73 9.42 12.73 11.08

July-2019 10.59 9.83 10.59 10.21

August-2019 10.04 9.67 10.04 9.86

September-2019 9.68 9.75 9.75 9.72

October-2019 9.90 9.93 9.93 9.92

November-2019 11.45 10.53 11.45 10.99

December-2019 11.40 11.52 11.52 11.46

January-2020 10.73 12.21 12.21 11.47

February-2020 10.43 12.97 12.97 11.70

March-2020 10.59 13.71 13.71 12.15

April-2020 11.97 14.51 14.51 13.24

May-2020 13.68 14.82 14.82 14.25

June-2020 15.04 14.80 15.04 14.92

July-2020 13.07 14.72 14.72 13.90

24 Month Average $12.37 $10.38 $12.90 $11.38

(Rounded to two Decimals)

Difference Between the 24 Mo. Average Higher-of III-IV and the 50:50 III-IV:

Higher-Of - Simple Average = Difference

$12.90 - $11.38 $1.52

Higher of vs. 2023 Class I Skim Mover Adjuster = Greater of: Minimum Base -orAverage of

2023 Class I Skim Mover Adjuster = Greater of: $0.74 -or- $1.52

Class I Skim Mover Adjuster for 2023 = 50:50 Advance III:IV Skim plus $1.52