Comparing The Federal Orders
August 29, 2021
This post will compare parameters for each of the Federal Milk Marketing Orders. While a lot of milk is being de-pooled in the Federal Orders, most of the milk is still paid by Federal Order formulas. The following parameters will be compared.
Component levels of butterfat and milk protein vary Butterfat is paid in all 11 of the Federal Orders. Milk protein is specifically paid only in the seven Federal Orders included the Class and Component payment system. The Federal Orders paid by the Class and Component formulas represent most of the milk.
Somatic cell counts are paid in four Federal Orders. They are all located in inland areas of the U.S.
The Uniform (average) price paid for skim milk is a weighted average of the four classes of milk and varies based on each Federal Order's mix of milk classes. The Uniform price uses 3.5 percent butterfat as a standard.
Below is a map of the Federal Orders. Three of the Orders, California, Arizona, and Florida are based on state lines. The Southwest is defined by the lines around Texas and New Mexico and the Upper Midwest is primarily Wisconsin and Minnesota. The Mideast includes Michigan, a major dairy state. Other Federal Orders are a mix of states and partial states.
Map of the Federal Orders
Chart I lists the Federal Orders by 2020 milk receipts. The Northeast was the largest Federal Order in 2020. Federal Orders like California and the Upper Midwest had very significant de-pooling, so those Federal Orders appear smaller than they would be if there was no or limited de-pooling. Florida is by far the smallest Federal Order.
Chart I - 2020 Milk Receipts by Federal Order
One parameter used to compare the Federal Orders is the component levels in milk. Charts II and III rank the Federal Orders based on butterfat and milk protein percentages. The Southwest is ranked highest in both butterfat and milk protein percentage with the Pacific Northwest close behind. In a prior post, Texas, which makes up the majority of the milk in the Southwest Order, was ranked as the fastest growing state in number of cows and volume of milk. See this prior post a review of the recent growth in component levels.
Chart II - Butterfat Percent by Federal Order
Protein is reported and paid in the seven Federal Orders using the component formulas. Again, the Southwest and the Pacific Northwest are ranked at the top. Surprisingly the Upper Midwest is ranked much lower in milk protein content than butterfat. What makes it surprising is that many producers in the Upper Midwest get bonuses on top the Federal Order payment for protein because high levels of protein are needed for efficient cheese making. Protein is very important in the Upper Midwest as more than 80 percent of the Upper Midwest milk goes to cheese. The Northeast drops to the bottom of the chart for milk protein content probably due to a significant amount of milk used in Class I fluid milk production.
Chart III - Milk Protein Percent by Federal Order
Somatic cell counts have fallen drastically over the years. The Mideast and the Upper Midwest are tied as the best in the ranking. Lower somatic cell counts do improve cheese making productivity, so it makes sense that milk for cheese production is well managed to attain low somatic cell counts. With average counts at 170,000 cells per milliliter, the lower end values are well below 170,000. Many cheese processors pay additional bonuses on top of the Federal Order payment for low somatic cell counts.
Chart IV - Somatic Cell Count ranked by the Federal Orders
The comparison of the Uniform price is saved for last in this post. It is presented in three charts. The first ranks all 11 Federal Orders and the remaining two charts separate the Federal Orders paid on the Component system from those paid on the Advanced system.
Florida is and historically has always had the highest priced milk. Florida is the smallest Federal Order but has over 80 percent of its milk in Class I milk for drinking. The Southeast and Appalachian Federal Orders also have large volumes of Class I milk.
Chart V - The Uniform Price for All Eleven Federal Orders
Among those Federal Orders paid by the component system, the Northeast Uniform price is well above the pack. The answer is that the Northeast Federal Order has a very balanced mix of all classes of milk including a lot of Class I milk for drinking. With de-pooling in the Northeast Federal Order, Class I is the largest class by volume. Class I milk cannot be de-pooled.
Chart VI - The Uniform Price of the Federal Orders
Paid by the Class and Component Formulas
Florida, with its huge percent of Class I milk gets the "award" for the highest priced milk. The Southeast and Appalachian Orders are close behind Florida. The Arizona Federal Order has a lot of Class IV in their mix and therefore has a lower Uniform price.
Chart VII - The Uniform Price of the Federal Orders
Paid by the Advanced Formulas
As mentioned above, Class I milk cannot be de-pooled. All other classes can be de-pooled and re-pooled based on the policies in their Federal Order. The Federal Orders in 'Table I below are listed by their percent of Class I milk. Notice that the ranking below follows the ranking of Federal Order in Chart V which lists the Federal Orders by their Uniform Price.
Each Federal Order has different rules for allowing de-pooling and re-pooling. California has a very sizable cheese business, but the milk pooled has very little Class III milk. Since the beginning of California as a Federal Order de-pooling has been very significant. From time to time nearly all the Class III or Class IV milk has been de-pooled. The same can be said for the Southwest Federal Order. If Class III or Class IV prices are above the Uniform price, the Class III or Class IV milk will be de-pooled.
Arizona which is paid on the Advanced system has a relatively small volume of Class I milk compared to the other Federal Orders paid on the Advanced system. Therefore, their Uniform price is much lower than the other three Federal Orders paid on the Advanced system.
Table I - Class Percent by Federal Order
What does all this mean?
If you are paid on the Class and Component system, maximizing milk protein and butterfat will provide strong revenue. That would apply especially to the Upper Midwest. When PPDs are positive, the Class III milk will be pooled, and when PPDs are negative, much of this milk will be de-pooled. The de-pooled milk is still typically paid at Federal Order component prices.
If your milk is marketed in Florida, you get paid specifically for butterfat. You will want to maximize butterfat. Milk protein is not paid for specifically and, therefore, protein carries little value. However, you will still receive a very nice price for your milk because the system does pay well for Class I milk.
There are many scenarios that could be developed for different areas.