Wisconsin dairy farmers are feeling the effects of the updated Federal Milk Marketing Orders, which took effect June 1. FMMOs set the rules for how milk is priced nationwide, shaping returns for farmers, processors, and ultimately consumers. The historic changes modernized pricing for dairy products.
Mike Brown, vice president of dairy market intelligence at T.C. Jacoby & Company, says early projections suggested Class III milk prices could drop by about 90 cents per hundredweight. That’s roughly 7.5 cents per gallon. Class III milk is used for cheese production. Most Wisconsin farmers are producing Class III milk. While some farmers have seen that price hit, Brown says other factors, such as processor-producer negotiations, continue to shape prices.
He notes that updating FMMO was critical, as outdated costs had pushed processors to abandon federal pricing altogether. Now, he says, cooperatives are regaining flexibility, and negotiations for milk premiums could restore some price adjustments later this year.
“So what’s happening now is that most farms, most supply co-ops, starting first of January, there’s been some summer ones as well, those negotiations are happening,” Brown explains. “So you may see some of that adjustment in that price coming back later in the year.”
Dairy Farmer Calls Foul
Mike Yager of Road View Dairy in Mineral Point says producers may not be aware of the effect the FMMO change has had on their milk check because it’s not a line item.
“We as dairy farmers don’t see it on our milk checks. But via the new make allowances, we are losing out on 90 cents per hundredweight additional money that the processors are now receiving based on the revamp of the federal milk pricing system,” Yager says. “Within this state, Order 30, on 32 billion lbs of milk in the state at 90 cents per cwt is $288 million less we are going to receive on our milk.”
The FMMO update increased ‘make allowances’ for processors to cover the cost of converting raw milk into products like cheese, butter, and whey.
Yager says that for each farm, that deficit could equate to an employee’s salary. And so far, for him, there have been no added premiums.
“There was discussion about processors may come back with premiums they’ve taken way over the past 5-6 years… quality premiums, volume premiums… I don’t know what they’re going to do. Time is going to tell that,” Yager says. “But at the same time, it’s not mandatory for them to pay it, and they can take it away, just like they’ve done.”
Yager tells Mid-West Farm Report that he doesn’t feel that he was well-represented at the FMMO hearings, and he believes milk pricing should be based on quality and components, such as fat and protein, instead of the “convoluted” milk pricing system. He wants to see the FMMO modernization process reopened.
“This federal order system… has been nothing more than a gambling tool for the processors,” he says.
Economist Has Overall Optimistic Outlook
Brown questions how relevant the Class III portion of the federal orders will remain in Wisconsin. With only 6-8 percent Class I utilization in the Upper Midwest and widespread de-pooling (opting out of the federal orders), he says cheese plants and butter-powder processors often bypass federal pricing rules if market conditions favor them. That trend, he says, is making the orders less influential even after the updates.
Ultimately, Brown points to two factors that determine what farmers are paid: the value of the products being made and the balance of milk supply and demand. Wisconsin’s strong focus on cheese production has helped add value, but when milk production outpaces demand, premiums fall. Despite this, Brown expects continued growth in the state’s dairy sector.
Still, specialty processors face challenges, he says. A weak cream market and lower butter prices have cut into revenues. That’s put more pressure on cheese to make up the difference. Brown notes that growth is largely coming from commodity exports, such as cheddar, gouda, and mozzarella, while niche cheese makers struggle to keep pace.
For Wisconsin farmers, Brown says long-term profitability will hinge on global demand for U.S. dairy and how well processors can capture value.
