Received March 30, 2023

March 28, 2023 

Ms. Dana Coale, Deputy Administrator 

USDA - AMS - Dairy Programs 

1400 Independence Avenue, S.W. 

Washington, D.C. 20250-0225 

Re: Petition of the Wisconsin Cheese Makers Association (“WCMA”) For a Hearing to

Amend Federal Milk Marketing Orders 

Dear Deputy Administrator Coale: 

The Wisconsin Cheese Makers Association (“WCMA”) submits this Petition to the United 

States Department of Agriculture (“USDA”), Agricultural Marketing Service (“AMS”) Dairy 

Programs seeking a hearing to amend all make allowances in the Federal Milk Marketing Order 

(“FMMO”) program administered by Dairy Programs. 

Accurate and up-to-date make allowances are absolutely critical to a properly functioning 

FMMO program. For Class III (cheese) and Class IV (butter and nonfat dry milk) products, a 

manufacturer is legally required by the FMMO to pay the farmers supplying it milk the money 

the manufacturer receives from selling its finished products to customers (as determined by 

monthly audited surveys of actual finished product prices for the core Class III and IV 

products), minus the cost incurred in making those products, as set forth in the FMMO 

regulations (the “make allowance”). As USDA stated when it last revised make allowances in 

2008: 

The ability of a manufacturer to offset cost increases are limited 

by the level of make allowances in the Class III and Class IV 

price formulas. Manufacturing processors are charged the 

FMMO minimum price for producer milk used to produce Class 

III and Class IV products. However, plant manufacturing cost 

increases may not be recovered because Class III and Class IV 

product-price formulas use make allowances that are fixed 

regardless of market conditions and change only by regulatory 

action. 

Milk in the Northeast and Other Marketing Areas; Tentative Partial Final Decision on Proposed 

Amendments and Opportunity To File Written Exceptions to Tentative Marketing Agreements 

and Orders, 73 Fed. Reg. 35,306, 35,323 (June 20, 2008). 

WCMA’s proposal seeks to have USDA take the requisite “regulatory action” and amend the 

manufacturing allowances for Class III and Class IV product formulas, as enumerated in 7 

C.F.R. § 1000.50, in order to reflect the substantial increase in plant manufacturing costs since 

make allowances were last revised in 2008. WCMA’s amendment will be based on record 

evidence that WCMA anticipates will include the most current studies of Dr. Mark Stephenson 

Wisconsin Cheese Makers Association, 5117 West Terrace Drive, Suite 402, Madison, WI 53718 

Phone (608) 286-1001 | Website www.wischeesemakers.org 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

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published by AMS in 2022, a new study that Dr. Stephenson is undertaking to update that study 

to take into consideration 2022–2023 data, and a study by Dr. William Schiek. 

WCMA’s proposal is: 

Amend § 1000.50 milk price formulas by revising the existing 

manufacturing allowances for butter, nonfat dry milk, cheese, and whey 

powder based upon evidence obtained from the hearing record. 

Amendments to these manufacturing allowances would directly affect the 

milk component values used in Federal Milk Marketing Order milk price 

formulas for all classes of milk. 

This proposal language is nearly identical (except for the studies relied on) to the language 

USDA previously published as Proposal 1 for the 2006 make allowance hearing requested by 

the cooperative Agri-Mark in September 2005. Milk in the Northeast and Other Marketing 

Areas; Notice of Hearing on Proposed Amendments to Tentative Marketing Agreements and 

Orders, 71 Fed. Reg. 545, 551–552 (Jan. 5, 2006). WCMA proposes revising the 

manufacturing allowances for cheese, whey powder, butter and nonfat dry milk using more 

recent and accurate studies and other information to update the current 7 C.F.R. § 1000.50 

class prices (as set forth below): 

Subsections: 

(l) butterfat price, current butter manufacturing allowance of 17.15 cents per pound, 

(m) nonfat solids price, current nonfat dry milk manufacturing allowance of 16.78 cents per 

pound, 

(n)(2) and (n)(3)(i) protein price, current cheese manufacturing allowance of 20.03 cents per 

pound, 

(o) other solids price, current whey powder manufacturing allowance of 19.91 cents per pound, 

and 

(q)(3) advanced butterfat pricing factor, current butter manufacturing allowance of 17.15 cents 

per pound. 

JUSTIFICATION FOR PROPOSAL 

As USDA has cogently explained:: 

The Class III and Class IV product-price formulas, among other 

factors, use the market prices of the manufactured products from 

which make allowance factors are subtracted. The remaining 

value, when converted to a milk equivalent basis, is the value of 

raw milk. Accordingly, the accuracy of deriving the minimum 

value of raw milk is dependent on the accuracy of the 

Wisconsin Cheese Makers Association, 5117 West Terrace Drive, Suite 402, Madison, WI 53718 

Phone (608) 286-1001 | Website www.wischeesemakers.org 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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commodity sale prices reported and in large part the accuracy 

of the manufacturing costs factors, or make allowance 

factors, that are used in the pricing formulas. 

73 Fed. Reg. 35,305, 35,324 (June 20, 2008) (emphasis added). 

WCMA has approximately 87 members including, for the purpose of this Petition, both 

proprietary and cooperative operators of pool and nonpool handlers primarily located in 

Wisconsin and the Upper Midwest. The pool handlers are directly subject to FMMO regulated 

minimum prices while nonpool handlers compete against pool handlers for their raw milk 

supply. All of WCMA’s operating members (there are several WCMA members who do not 

operate milk manufacturing facilities), are thus directly impacted by FMMO minimum 

classified prices and especially Class III and IV prices announced by AMS each month. In 

short, FMMO Class III prices provide the baseline for all WCMA members in making dairy 

farmer patron payments. The vast majority of WMCA members operating manufacturing 

plants qualify as small businesses for purposes of FMMO rulemaking. 

FMMO Class III and IV prices are established based upon product formulas for cheese, whey, 

powder, butter, and nonfat dry milk. WCMA’s exclusive proposal is to update the 

manufacturing allowances for cheese, whey powder, butter and nonfat dry milk. The current 

make allowances were fixed by AMS based upon significantly outdated cost data from 2005–

2006, yet are still used to establish minimum prices for milk under all FMMOs. Actual 

manufacturing and other costs considered in make allowances have risen dramatically during 

the past 16 years. Despite these cost increases, FMMO provisions have effectively stopped 

manufacturers from covering these higher costs through make allowances. The amount of time 

that has elapsed since the last hearing and rulemaking on these pricing formulas is almost twice 

as long as the interval when AMS first established formula prices in Federal Order Reform in 

2000 and adopted updates in 2007 and late 2008 based upon 2005 and 2006 data. 

AMS itself retained Dr. Mark Stephenson to conduct an updated survey of Class III and IV 

plant costs. That study was published by AMS in February 2022, and that study is based mostly 

on 2018 data and certainly shows enormous cost increases since the current allowances were 

set. In the intervening time since 2018, significant additional cost increases have occurred. At 

the hearing, WCMA will ask USDA to consider an updated version of this USDAcommissioned study “Cost of Processing Study for Cheese, Whey, Butter and Nonfat Dry Milk 

Plants” released by Dr. Stephenson in February 2022. WCMA and the International Dairy 

Foods Association have commissioned Dr. Stephenson to update his study with 2022–2023 

data. 

WCMA proposes that in considering the need for a hearing (and at the hearing as submitted 

evidence) that USDA take into account in addition to Dr. Stephenson’s study, an updated cost 

study by Dr. William Schiek, CEO of the Dairy Institute of California. Dr. Schiek’s most 

current projections, based on CDFA studies and updated with indices, encompass costs to 

manufacture cheddar cheese, dry whey, butter and nonfat dry milk in 2022. Dr. Schiek has 

determined that the cost to manufacture cheddar cheese has risen 51%, dry whey has risen 

Wisconsin Cheese Makers Association, 5117 West Terrace Drive, Suite 402, Madison, WI 53718 

Phone (608) 286-1001 | Website www.wischeesemakers.org 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

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49%, butter has risen 39%, and nonfat dry milk has risen 59% compared to the current make 

allowance values. 

The historical context of USDA’s prior updates to the pricing formulas demonstrates we again 

find ourselves at a moment in time that demands such an urgent change. As Agri-Mark 

accurately stated in 2005: 

On January 1, 2000, the basis for determining class prices for 

milk regulated under Federal Milk Marketing Orders was 

changed dramatically. Prior to that date, most class prices were 

determined using the competitively set M-W and Basic Formula 

Prices (BFP) that were paid for milk by dairy product 

manufacturers in the Upper Midwest. Those prices moved up or 

down as cheese and other dairy product prices moved. Those 

prices also moved if manufacturing costs changed and plants had 

more or less net income available to pay farmers for their milk. 

When the Federal Orders were amended under major reform 

provisions in January 2000, the basis for determining class 

prices was shifted to an end-product pricing system. Rather than 

surveying competitively set farm milk prices, under this revised 

system, USDA surveys competitively set nationwide cheese, 

whey powder, butter and nonfat dry milk commodity wholesale 

prices. USDA then inserts those dairy product prices into 

formulas which, in turn, are used with administratively set 

product yields and manufacturing cost allowances in Order to 

determine the class prices to be paid by handlers for farm milk. 

For the Class III milk price for example, the system functions by 

obtaining the cheese and whey products prices, and then 

subtracting fixed manufacturing allowances in order to end up 

with the net farm milk value. Appropriate yield factors are also 

used to convert dairy product pounds to pounds of raw farm milk 

components (and eventually, hundredweights of farm milk). 

When USDA seeks the appropriate current dairy product prices 

to use in its class price calculations, it conducts weekly surveys 

of hundreds of plants so a reasonable monthly average price can 

be determined. The Department then automatically uses those 

prices to determine the appropriate class and component prices. 

Rightfully so, USDA wants the price of milk to be responsive to 

any changes in the prices of the corresponding dairy products. 

However, similar care is not taken with the manufacturing cost 

allowances used in the same formulas. The fixed manufacturing 

cost allowances, currently in place throughout the Federal Order 

system, are completely unresponsive to any changes in actual 

Wisconsin Cheese Makers Association, 5117 West Terrace Drive, Suite 402, Madison, WI 53718 

Phone (608) 286-1001 | Website www.wischeesemakers.org 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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costs until a Federal Order hearing is held and a USDA decision 

is determined to amend the appropriate provisions of the Federal 

Order regulations. 

Letter from Robert D. Wellington, Sr. Vice President for Econ., Commc’ns & Legis. Affairs, 

Agri-Mark Dairy Coop., to Dana Coale, Deputy Adm’r, Dairy Programs, USDA Agric. 

Marketing Serv. (Sept. 29, 2005) at 2–3, 

https://www.ams.usda.gov/sites/default/files/media/DYClassIIIIVMake 

AllowancesAgriMarkReq.pdf. 

As noted above, the manufacturing cost allowances currently in place throughout the FMMO 

system for these products as of October 1, 2008, are based upon cost data from surveys and 

data dating to 2005 and 2006. Manufacturing costs for all dairy products have soared 

significantly in the intervening 16 years. Even a layperson is abundantly aware of the 

unprecedented increase in costs for business operations during recent years. It would be 

incorrect, and in fact unreasonable, to assume that somehow technology or other efficiency 

improvements at plants have somehow offset these escalating costs. 

Again, as correctly recounted by Agri-Mark in its 2005 submission to AMS: 

Dairy product manufacturers under Federal Milk Orders are 

trapped into a fixed make allowance with no opportunity to 

cover their higher costs no matter what the price of their dairy 

products are. If manufacturers raise their product prices to 

cover higher costs, those higher prices automatically lead to 

higher milk prices, leaving no additional net income to apply to 

the higher costs. 

Id. at 3. 

This is a major problem for dairy product manufacturers like the plant operator members of 

WCMA. In the Upper Midwest, a fair measure of the health of the cheese industry is a 

comparison of where producer pay prices are relative to Class III. In 2013–2014, the Upper 

Midwest saw on average a $1.50 premium paid over Class III. Without updated make 

allowances, cheese plants today are fortunate to return the Class III price; more often we see 

prices under Class III. This is clear evidence that the current make allowances are insufficient 

to cover plants’ costs. 

Furthermore, in February and March 2023, WCMA member cheese producers responded to a 

WCMA survey seeking percent changes in business costs, reflecting the time frame 2019 to 

2022. While make allowances have not been updated since 2008, this survey asked members 

for cost changes in a more readily-researchable span of time. Those percent change data were 

averaged (simple average) to produce the following results received from 18 respondents 

which WCMA concludes is a representative sample of operators of large, medium and small 

cheese plants: 

Wisconsin Cheese Makers Association, 5117 West Terrace Drive, Suite 402, Madison, WI 53718 

Phone (608) 286-1001 | Website www.wischeesemakers.org 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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• The base wage level at these cheese manufacturing sites rose an average of 20.2% from 

2019 to 2022 (18 respondents); 

• The cost of a single-person health policy premium rose an average of 20.9% from 2019 

to 2022 (18 respondents); 

• The cost of electricity per kWh rose an average of 14.1% from 2019 to 2022 (18 

respondents); 

• The cost of natural gas per MMBtu rose an average of 68.9% from 2019 to 2022 (18 

respondents); 

• The cost of cultures used in cheese production rose an average of 15.8% from 2019 to 

2022 (18 respondents); 

• The cost of salt used in cheese production rose an average of 18.8% from 2019 to 2022 

(17 respondents); 

• The cost of cardboard packaging (bulk cheese boxes) used in cheese production rose 

an average of 25.8% from 2019 to 2022 (17 respondents); and 

• The cost of plastic packaging (bulk cheese bags) used in cheese production rose an 

average of 36% from 2019 to 2022 (17 respondents). 

Sixteen of the eighteen respondents are small businesses as defined by the U.S. Small Business 

Administration. The respondents are headquartered in six states (producing cheese in those 

states and additional states). 

These everyday losses and significant cost increases discussed above are impossible to sustain. 

Farmer-owned cooperatives in this region are routinely returning dairy farmer payments with 

significant deductions from FMMO uniform minimum prices. Proprietary members of WCMA 

are absorbing losses, attempting to sell specialty cheeses at prices designed to mitigate losses, 

and/or otherwise failing to invest in plants and facilities. This is not sustainable for the plants, 

nor for dairy farmers who depend on these plants as outlets for their raw milk. 

WCMA understands and appreciates the concerns of our dairy farmer patrons for whom 

increased make allowances mean lower regulated minimum prices. However, as USDA itself 

explained when it last increased make allowances in 2008: 

Opponents of increasing make allowances argue a number of 

points—that they are already set at too high a level, that dairy 

farmer production costs also have increased significantly due to 

higher energy and feed costs, that processors should look beyond 

asking dairy farmers to receive less for their milk by charging 

more for manufactured products, and that make allowance 

increases should be made only when all dairy farmer production 

costs are captured in their milk pay price. These are not valid 

arguments for opposing how make allowances should be 

determined or what levels make allowances need to be in the 

Class III and Class IV product-pricing formulas. The record 

demonstrates that current make allowance levels are not 

reflective of the costs manufacturers incur in processing raw 

Wisconsin Cheese Makers Association, 5117 West Terrace Drive, Suite 402, Madison, WI 53718 

Phone (608) 286-1001 | Website www.wischeesemakers.org 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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milk into the finished products of cheese, butter, NFDM and dry 

whey. 

Additionally, the Class III and Class IV product-price formulas 

establish derived classified prices for producer milk that are used 

nationally in all Federal milk orders. When dairy farmer 

production costs exceed the value for which products are sold in 

the marketplace, no source of revenue from the marketplace is 

available to cover those costs. 

In the aggregate, the costs of producing milk are reflected in the 

supply and demand conditions for the dairy products. When the 

supply of milk is insufficient to meet the demand for Class III 

and Class IV products, the prices for these products increase as 

do regulated minimum milk prices paid to dairy farmers because 

the milk is more valuable and this greater milk value is captured 

in the pricing formulas. Dairy farmers face no regulatory 

minimums in their costs and face no regulated minimum 

payment obligation in the way that regulated handlers must pay 

dairy farmers for milk. 

73 Fed. Reg. at 35,324. 

Furthermore, the loss of significant plant capacity and the resulting loss of competition will 

mean greater pain for everyone, including dairy farmers. Dairy product manufacturers that 

serve as nearby outlets for local dairy farmer milk and as balancers of billions of pounds of 

FMMO milk cannot come close to covering their costs under current FMMO provisions. 

WCMA is aware and supportive of USDA and industry efforts for USDA itself to have the 

authority and funding to conduct regular, audited dairy product cost studies. A long-term 

solution would be to have such studies efficiently update Section 50 make allowances on a 

regular basis. However, this requires Congressional action both to authorize and fund the 

audits. It will likely take at least another year or two, if not longer, before (not yet introduced, 

much less passed) legislation authorizes the initiation of such audited cost studies. Following 

Congressional approval, a long hearing process would precede a fully developed plan for 

USDA plant audits. The dairy manufacturing industry simply cannot wait several more years 

for this solution, as plants suffer growing losses each day as a result of the current obsolete 

cost structure. These dated manufacturing allowances must be updated as expediently as 

possible using the best available means. 

CONCLUSION 

Current manufacturing allowances are well below the actual costs involved in manufacturing 

cheese, whey powder, butter, and nonfat dry milk powder. Every day that goes by means losses 

on the part of manufacturers who provide outlets for billions of pounds of Federal Order milk 

production as well as balancing services to their respective Orders. We clearly need this 

Wisconsin Cheese Makers Association, 5117 West Terrace Drive, Suite 402, Madison, WI 53718 

Phone (608) 286-1001 | Website www.wischeesemakers.org 
 

 

 

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proposal considered at a hearing to be held as soon as possible to address these serious 

economic problems. 

Thank you for your consideration. 

Sincerely, 

John T. Umhoefer 

Executive Director 

Wisconsin Cheese Makers Association 

Wisconsin Cheese Makers Association, 5117 West Terrace Drive, Suite 402, Madison, WI 53718 

Phone (608) 286-1001 | Website www.wischeesemakers.org