USDA published its final rule Friday on its Dairy Forward Pricing Program, which allows dairy producers to enter into forward contracts with proprietary handlers for Class II, III and IV milk. The rule becomes effective today.
The program, which is mandated by the 2008 Farm Bill, does not allow forward contracting Class I fluid milk. But it does allow handlers to pay producers less than Federal Order minimum prices for the milk they contract that is Class II, III and IV. The program also sunsets September 30, 2012, but it does allow contracts to extend until September 30, 2015.
The program is similar to a pilot program that ended in 2004. USDA did a study of proprietary forward contracting from September 2000 through March 2002. On a monthly average basis, 3.9% of eligible producers and 5.7% of proprietary manufacturing plants, and 5.3% of eligible pooled milk participated.
The study concluded the pilot forward price program was effective in reducing price volatility. The contracted milk received an average monthly price of $14.02, with a range from $13.23 to $14.86. Had that milk not been forward contracted, it would have received an average monthly price of $14.51, but with a range of $12.04 to $17.75.