USDA proposes increasing make allowances

June 24, 2008 07:00 PM
            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.
            In a bit of an odd twist, the voting will conclude more than a month before comments on the "tentative partial final decision” are due August 19, 2008. If the vote passes, and all indications are it will, the new make allowances could become effective September 1.  For the complete decision, go to:,2008/FederalRegister.pd​f

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