Last Friday, USDA issued a "tentative partial final decision” to amend, and in some cases substantially increase, make allowances in all Federal Orders.
The cheese make allowance would jump from 16.82¢/lb. to 20.03 ¢/lb., a 19% increase. The butter make allowance would jump 43%, from 12.02¢/lb. to 15.15¢/lb. The proposed make allowance increases for non-fat dry milk and dry whey are more modest, up 7% and 2%, respectively. The changes come as a result of two hearings held in February and April, 2007.
Since make allowances and producer minimum payments are a zero-sum game, the increased make allowances mean producer prices will decline. How much they will drop depends on the blend of the various class components in a producer's Federal Order. According to some estimates, Class III prices could drop 35¢/lb. and Class II and IV prices 27¢/lb. Since Class I prices are the higher of either III or IV, their drops depend on actual price levels.
USDA estimates overall producer income will decline $156 million per year, or about 0.51%. Conversely, the increased make allowances should help manufacturers' bottomlines, allowing them to recoup higher energy and labor costs.
Wholesale prices for cheese could climb 1.76¢/lb. and wholesale butter prices could climb 3.46¢/lb. Fluid milk retail prices could decline 1¢/gal.
USDA is currently in the process of mailing ballots to co-ops (which are allowed to block vote) and individual producers who supply milk to Federal Orders but are not co-op members. Under Federal Order rules, a "no” vote means the entire Federal Order is voted out, not just the proposed changes. Voting will be concluded on July 11, 2008.