The Misunderstood Negative PPD

If the dairy commodity markets stay at the higher levels of June, we will see an enormous negative Producer Price Differential in several Federal Orders. For some reason, negative PPD’s make most dairy people cringe. If you’re a dairy farmer and your milk is pooled under the Federal Order system, you should want to see negative PPDs.

A negative PPD means that the cheese price has come up so fast that the FMMO system couldn’t handle it. The bigger the negative PPD and the more of them you see, the higher the overall milk price is. From a dairy farmer standpoint, negative PPD’s are great.Because cheese prices are the majority of what is used to calculate the Class III milk price, this scenario caused the Class III price to move above what the blended price of all the other classes of milk in the Order are.

But there is one issue that I find extremely unsettling about this. Whenever we have negative PPDs we see large amounts of milk depooled in many Orders. Under current Federal Order pooling provisions, handlers have the right to depool or disassociate any milk going into non-pool plants from the30 market.

Once you understand the dynamics of depooling, then you know depooling simply removes money from farmers’ milk checks and allow the processor or handler to keep it. First, the Class III milk price is determined by a survey of the cheese prices in the marketplace. If we allow depooling by cheese makers, are we not giving them a windfall profit?

The ratio between the Class III milk price and their cheese selling prices stays the same; all depooling does, is it lowers processors’ milk costs and reduce what the farmer gets in relationship to the current market. Our milk class pricing formulas establish what the farmer should get out of the current commodity price, depooling totally disrupts that relationship.

The only reason a cheese manufacturer or handler selling to a cheese manufacturer pools this milk in the first place is, because normally they draw money out of the pool. If you benefit when the other guy’s milk generates more money, you should share your proceeds when your price is higher. The Federal Order system is all about evening the playing field. It is all about sharing the revenues and we believe that concept is sound and should apply at all times, not just when the bottled milk generates more money.

The Federal Order system was set up to help farmers. It is supposed to create and promote orderly marketing and enhance revenues to farmers. This loophole of depooling does neither. It allows money that should go to farmers to be removed from the pool and used to enhance corporate profits and in some cases even be taken out of the country by large multinational companies.

National Farmers supports having one national federal milk order that covers the entire lower 48 states. One of the rules in our proposal is to eliminate depooling of milk. Please join us with your support.One of the most efficient and practical mechanisms that could help our farmers is the Federal Milk Order System.

A National Federal Order could implement needed changes to the dairy industry much more quickly than our current system that has to wait for either Congressional approval or a decision by the Secretary of Ag.

A National Federal Order would give us a dedicated system controlled by the dairy farmers that understand the current marketing conditions and needs of the producers to help maintain the much needed balance. We ask that you support our idea of establishing One National Federal Milk Order.  

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