Create Your Milk Bill Format for Marketing Effortlessly

Milk bill format for Marketing

all right welcome to understanding the basics of milk press pricing my name is Audrey Thompson and I'm a Staff attorney here with the Penn State Center for Agricultural and Shale law today's webinar is part of the center's understanding agricultural law series a course designed to provide subject matter literacy and competence on fundamental issues of agricultural law to attorneys and business advisors who work with or represent agricultural or rural clients but who may not necessarily specialize in agricultural law this series is wholly sponsored by the Pennsylvania Department of agriculture's AG Business Development Center which was established through the 2019 Pennsylvania farm bill the AG Business Development Center aims to enhance the long-term Vitality of Pennsylvania Farms by supporting Farm transitions both from generation to generation and from conventional to organic farming supporting beginning Farmers providing risk management education and providing financial assistance through low-interest loans and grants this webinar is part of our understanding agricultural educational series as you can see uh Brooke I know if you're there there we go Advanced next slide there we've covered numerous topics so far including AG labor land use regulation crop insurance conservation programs AG Finance Pennsylvania's clean and green and many many others recordings of all these webinars are available on our YouTube page and accompanying materials can be found on our understanding agricultural law landing page upcoming topics in our understanding the basics of AG law series include understanding the basics of pesticides and go to the next slide there there you go and the plant protection act and our sorry federal and state seed laws uh which will cover plant protection act and Pennsylvania seed law the fair labor standards act and perishable agricultural Commodities act and I would like to point out that for the pesticide webinar in September we are approved to offer pesticide applicator recertification credits through PDA for that one so if you know someone who needs that recertification please refer us I refer them to us for that that educational program there and finally uh just a couple reminders before I turn this webinar over this webinar is being recorded if you have any questions please write them down or in the Q a feature or put them into the Q a feature and I will collect those and ask them at the end and please do ask us questions we want to have a dialogue as much as possible in this format and we encourage you to fill out the survey at the end of the webinar tell us what you liked what we can improve and what topics you'd like to see in the future all right I will now turn this webinar over to Brook door the seniors centers senior staff attorney Brooke joined the center for agricultural Michelle law in 2019 prior to coming to the center Brook served as the chief counsel for Pennsylvania's Department of Agriculture and before joining PDA your practice law in Lancaster County for 18 years Brooke the screen is yours all right thank you Audrey we got a very fancy presentation here with the gun we got videos and music at the beginning and all right so let's get right into it we're going to talk about understanding the basics of milk pricing we're going to deal with both Federal milk marketing orders and the federal system and we're also going to talk about the state system that exists in Pennsylvania which is quite unique in the sense that Most states don't have anything like that and again this is going to be geared toward more or less a entry-level type of understanding we put together this entire series uh for that type of uh level of attendee we will probably at some point in the future be doing deeper Dives on certain topics but we will identify those so I apologize if you are a little bit past the level of this particular presentation and of course I apologize if I'm not able to keep it down at a entry level because this is tough stuff um as as the old expression goes there's more headaches in a pint of milk than in a pound of whiskey and that is specifically not about the production this is all about the pricing and uh you know the federal pricing system uh is quite uh complex and I've taken several cracks at trying to make it simpler for people to understand so this will be another one of those and let's hope I'm successful in making it a little easier to understand uh again Audrey introduced me that's me uh and uh I had a long career in private practice and then went to the Department of AG which is where I really got into uh my first exposures with uh Dairy pricing both federal and state uh more geared towards state but you have to sort of learn the federal to understand where the state fits in at all and um uh so there's my contact information love to get emails from anybody any of our attendees if you got questions and if you didn't understand something or I can uh there's lots more resources out there believe me we're just scratching a tiny bit of the surface here um so there's all sorts of things that out there that I could direct you to for better understandings and explain uh finer points and uh one of the areas to go Audrey talked about it we have these virtual resource rooms as part of our website and we have one that's called Dairy and dairy products law uh which is specifically on the issues we're going to talk about here today as well as other um Dairy related issues and it kind of looks like this when you open it up there's a drop down menus over here they're all on the left but I had to kind of break it up so you could see the the dark blue blocks here these are sort of the headings of the different pages that are in that virtual resource room we're going to be right where the star is here but we're going to be talking about price regulation at the federal and state level there's lots more as you can see here in the virtual resource room and um so and we'll try uh and probably are overdue for a little bit of a freshening up uh of that resource room but there's lots of great stuff in there uh okay now Federal milk pricing um now this is conducted through the operation of federal milk marketing orders uh otherwise abbreviated many times as f f m m o uh but there's not a whole lot there's no easy way to say that one you don't say uh foe I don't know it's just it's just Federal marketing orders you just gotta spit it all out and also there's a there's marketing agreements aside to this um which will perhaps touch on a little bit um but it's all pursuant to governmental Authority these milk marketing orders and um let me just give you a little map here I will show you the existence of what what federal milk marketing orders uh are in effect in uh the United States right now there are 11 and this is a map that shows you where they all are and the um the key thing probably to understand couple little notes on this map California is a very recent addition there did not used to be a federal milk marketing order in California and um but for the rest of the country this is a highly evolved uh version of the map at many times in past decades and and federal milk marketing orders are some of them decades and decades old or the concept of them is decades and decades old they've gone through many permutations and re configurations in terms of what geographic areas the areas they cover and uh exactly what they say but the bottom line is and their names for that matter too uh we we have these 11 right now as you can see the numbers are all over the map you've got Northeast is federal order one okay that makes some sense but then uh you know right next to it you got the Mideast which is federal order 33 so you can uh uh see that it's the numbering system has of course uh you know evolved a lot let's just say and a lot of uh orders have gone away so to speak in the numbering system um now uh the other thing to keep in mind about the map is um the areas that are white in the map uh are areas where they're in fact is no federal milk marketing order in effect now there can be many reasons for that and in fact we just mentioned that California did not have one before and that certainly wasn't because the California did not have lots of milk production and they do and did not have lots of milk processing plants which they do however um in some other areas of the country uh it's more a product of uh the lack of a robust um Dairy processing and production infrastructure in those parts of the country or large population centers in those areas of the country that you would usually bring along with them some degree of dairy processing uh in any event um uh we'll probably see some of the evolution in all of this because of course uh the way things are going in the dairy industry these days if you're familiar with it is that uh the western United States are starting to become the uh the center of dairy production through these uh Mega dairies with you know anywhere from 10 to 50 000 to perhaps even a hundred thousand cows on a single facility uh and you know those are coming up in Nevada and you know Utah and and some of these states that don't have an order uh but in any event uh these uh these various uh boundaries of the orders that are in place now have been you know evolved over many years um and uh we'll probably see more evolution of that in the future just like we did when California was added Pennsylvania since we are here to talk about uh Pennsylvania issues for um uh people in Pennsylvania as part of our mission from the uh AG Business Development Center at the PA Department of AG uh Pennsylvania is actually in two or ports parts of it are in two separate orders uh the light blue or grayish is the Northeast order Federal order one and that's generally the order that we talk about when we talk about Pennsylvania because that is the the majority of the dairy production in the that uh area and or that is the majority of the dairy processing plants in that particular area and um if a plant is in the uh scope of the orders Geographic boundaries that's actually what really matters because it's all governed upon you may be a Dairy Farmer outside the line so to speak but if you're shipping into uh the into the orders geographic area then your milk is you know fully covered uh by the orders terms now Federal uh order 33 is the Mideast and that you know includes most of Indiana all of Ohio and all of Michigan and then there's this part of western Pennsylvania that is uh within uh 33 and there are some milk processing plants in that portion too um uh I may sort of be a little more Federal order one Centric and the things I talk about here today okay now all this starts and goes all the way back to the depression and as with many uh agricultural uh programs uh at the federal level um the probably the two Watershed events and uh you know the development of uh AG as a uh as an agency of the federal government and also uh as sort of a policy uh making entity uh to uh support and ensure the continued viability of of uh agriculture uh in the country uh in the advancement of it uh this obviously um you know Abraham Lincoln and his presidency was the establishment of the USDA as well as the land grant uh University system uh and so he was the first person to appoint a secretary of agriculture that was a lot those were all Watershed years the other Watershed years were the depression uh because at that point in time the country you know continued to be more isolated international trade was not what it was now um and uh you know food had to be produced here um we were not in the in the business as we are today of having at least an ability to import uh you know food at the quantities that we could today and so it was all it was even more important in those days to be maintaining the viability of all farms uh in order to feed ourselves you know and people talk about why does AG get such special attention from the government well a government which fails to feed its people fails so uh that pretty much tells you why it is that uh that is a uh a priority and that you know Departments of Agriculture always feel these dual roles of a regulator uh but also a promoter um and that is because this fundamental concept that uh a as as humans we need to eat every day several times a day and number two uh in the concept of or in the area of self-governance again a government that does not feed its people fails uh and so that is why the government uh is particularly involved in Agri culture as an industry in this country and there's no way around that and the ability to import food is not going to help us here in the United States we still have to feed our people um now um the Agricultural Marketing agreement Act of 1937 is the successor to a previous Depression era statute called the agricultural adjustment act and it was all recodified or in 1937 and this is generally you know there this is the act that provides the enabling Authority for any type of agricultural com excuse me I have a tendency to mistakenly hit the advance sometimes this is the statute that provides all the enabling Authority for all commodity marketing orders and commodity marketing orders are an entire area of authority that exists um at the federal level and that is administered by the USDA uh and people are not as familiar with marketing orders for particular Commodities and many many Commodities have them not just milk so when we talk about Federal milk marketing orders uh there are many other marketing orders sugar for example and uh you know all sorts of you know other Commodities have their own marketing orders um and what are these marketing orders for well take a look at the bottom of this uh little piece and this is why I include this in here in the recodification of uh the authority to have marketing orders in the uh agricultural marketing agreement Act of 37. um there was a declaration of more or less sort of the reasoning behind why the government is uh getting involved here and uh essentially lending the government's authority to the marketing of an Agricultural Product in some way shape or form it says it's hereby declare that the disruption of the orderly exchange of Commodities in interstate Commerce impairs the purchasing power of farmers and destroys the value of agricultural assets which support the national credit system and that these conditions affect transactions in agricultural Commodities with a national public interest and burden and obstruct the normal channels of interstate commerce so that's the kind of uh language that you see in many Depression era statutes because we were living at a time would perhaps not unlike some of the things that we went through in covid and maybe uh maybe a little lesser scale some of the things that we went through in the Great Recession of the late 20 uh odds the 2008-2009 you know that period of time when we had massive uh you know financial institution failures almost lost a big chunk of our auto manufacturing and in the event this is the kind of language that you then see creeping into legislation and that was why this was you know coming into play is because the Depression had so disrupted um all aspects of Commerce and in particular Farmers abilities to keep going um that uh you know intervention and government Authority was needed and if you know your history of you know the the the Supreme Court stacking and the Commerce Clause arguments that went back that went on back then or the the threats of Supreme Court stacking uh in the Roosevelt times you know we have um quite an American uh you know uh story to tell with regard to uh how it is that um our government addressed uh these disruptions um in any event this was one of the ways they addressed it um through uh essentially empowering the Department of Agriculture to uh to put behind excuse me let me go backwards to put essentially behind a particular commodity um uh uh uh group such as sugar manufacturers or or Dairy Farmers um and you know into uh or lend the government's you know uh regulatory authority to their attempts to stabilize let's say prices in their uh before their particular commodity um and um and many of the other aspects of how they Market their commodity in any event in today's world seven U.S code uh 608c is the uh current provision that you would go look at if you want to actually look look at the statute on uh things like uh Federal milk marketing orders or other commodity marketing orders um this statute the Agricultural Marketing agreement Act of 37 is quite a um surgical uh uh uh specimen at this point it's been grafted together thereby so many amendments over the years that it's a little tough to read nicely section 608c isn't so hard to read um so the section about orders is not so bad um now here's here is essentially what section the section says specifically with regard to milk marketing orders to try to allow Dairy Farmers to remain more viable and to Market their milk in a more stable Market condition and before we talk about that you have to understand how volatile Dairy markets are and many of you may and some of you may not um you know first of all we're dealing with a uh highly highly perishable commodity I mean milk in its fluid form it might be the most perishable commodity that is that that we uh you know sell and consume in this country um you know it is after all a uh a bodily fluid and um you know it is so in just the way that we have to you know be careful in the meat uh field you know with with those all of those various Commodities uh milk is even more perishable and more volatile in terms of its safe 50 and it's you know let's just say consumability um so that's obviously one thing other things that come into play is during the Depression and even you know continuing to this day Dairy Farmers um are holding this commodity subject to spoilage in a very short number of hours uh you know the rules essentially in the dairy industry are that you have to have your bulk tank where all your where all your results of your milking of your Dairy herd are stored until the truck comes along to take them to the processing plant um 72 hours you got 72 hours to get that milk off your farm into a processing plant um so you know that is much shorter time that you would have in handling meat depending on how it is that you're you know handling it and Etc but in any event um so that's a big big issue the other issue that you know comes into play with the area of course is that the bargaining power is very um uh unequal uh processors can essentially sit and wait out the farmers uh to drop their prices if they don't like the prices and the farmers are desperate to sell their milk before it's before it goes bad and they may have to dump it so uh you know not only do we have this highly volatile commodity but then you have large processors who are buying from hundreds and hundreds of different smaller Dairy Farmers uh used to be much many more and much smaller now of course there is a lot of consolidation in very large dairies but the bottom line is there's not a uh an equal bargaining power between the two um and as they say generally in ag uh all AG producers or Price takers not price makers it's tough to you know try to dictate what you're going to sell your product for um when it's uh subject to spoil spoiling and B you know you're one of hundreds and hundreds of people who Supply the same commodity to the processors that are purchasing it um and that's why milk cooperatives have come into play and this is it's important to understand this system to understand what a Cooperative is and I'm not going to go into that here that's something that is very uh um essential to understanding anything about the dairy industry is to understand how cooperatives operate the bottom line is when I have someone that I need to explain it to I just say this is like a labor union for Dairy Farmers this is the representative of uh the the collective Dairy Farmers in their numbers hundreds and thousands of them belonging to Dairy cooperatives who then do the work to secure the markets for that milk and the cooperatives generally are the ones who are um uh essentially uh hauling the milk from the farm to the plant and then the processor is in instances where Cooperative is involved the processor just simply sits at the plant and waits for um the Dairy Farmers slash cooperatives truck to show up to unload and all that Transportation cost is on the Dairy Farmer to the processing plant today we have consolidation and processing plants too so you have processing plants that become farther and further away uh and so there's more travel time and that just makes the uh the whole problem uh even worse so bottom line is it's really essential to understand all these things in any event uh marketing orders shall contain and this is what the statute says they shall contain Provisions to classifying milk in ance with the form in which or the purpose for which it is used and that's the classification system uh that we use based in the dairy industry to this day based upon uh the utilization of the milk what is it being used for is it used for fluid milk to drink is it used for butter is it used to make powdered product is it me is it used to make cheese or ice cream or some other type of soft product like you know sour cream or yogurt or something like that all of which have their unique properties and all of which have to be uh sort of understood to understand the large hole okay so classifying milk in ance with the purpose for which it's used and fixing and provide or providing a method for fixing minimum prices for each classification uh which all handlers which is another word for essentially milk processors shall pay and the time when they shall pay um and those are all the things that the milk marketing orders uh govern and in the absence of the milk marketing orders there would be little to no governing or regulation of those particular things so that's why Dairy Farmers petitioned the government the government under um the AG Marketing Act um of 1937 in order to establish these marketing orders which then once established have the power of Law and uh handlers or processors are required to comply with them uh in order to get that commodity um so uh in one way it's you know I I use the labor union analogy for cooperatives uh many times uh but it's got a lot of holes in it or it's not completely um on all fours in terms of an analogy because for one thing um there's a bit more governmental weight behind uh some of the terms that the producers um can now dictate a bit because of the existence of a marketing order um and um but but and another key difference is a little bit on the other side which is um the milk check in other words the payment for milk goes to the Cooperative not to the individual Dairy Farmers then the individual Dairy Farmers are paid by their Cooperative so there is a little bit of a middleman it's not like a dairy or it's not like a labor union where the labor union doesn't collect your paycheck and then distribute it to all of the workers who are members of the uh of the Union so in that sense totally different than a labored Union uh in any event the other provision that's important to understand is that um uh is the second bullet point I have here which is prices shall be uniform as to all handlers subject only to adjustments for volume market and production differentials customarily applied by the handlers which can be pretty wide spread including production differentials means there's uh you know it takes it takes one amount of work for a processor to to make excuse me to make yogurt from milk it takes less work to to package it as fluid milk for drinking uh it may take you know another whole set of expenses and processes to make ice cream and then let's say to make cheese or butter all of these things take a different amount there's a production differential in what it costs to do that and therefore the price um that is paid has to take account of that in some way shape or form so that's why prices aren't completely uniform we'll get to a little more of that in a second so in other words while you're trying to to provide ensure that the processors pay everybody the same um it's pay them the same for milk that is used for same products so in other words comparing Apples to Apples um uh so the prices are different for the different classes of milk which we will get to in a second I have a slide for that um and then um so in any way any event this second bullet point talks about the allowances for differences but the concept here is that other than one of these allowed differences the I what they're shooting for here is that um uh all handlers within a particular marketing order then have to pay the same amount for for all the milk that they purchased that goes into butter for example or all the milk that they purchased that goes into cheese for examples or that goes into fluid milk for example and prior to this it sounds kind of Elementary but prior to this um you know that was not the case and that just made market conditions even worse for Dairy Producers okay here are the regulations if you ever need them you click on the link and here are all the milk marketing orders here are the 11 right here in the middle here um uh that just lists the areas and this is all the rest of the regulations that deal with um the milk Federal milk marketing order system or other Dairy aspects just in case you ever need that now how do you create one of these marketing orders and this is an important thing to understand in the big picture and I like to go over this because it explains to people exactly how these things came to be they are not an act of Congress uh this is a little uh rundown that USDA has right on their website if there's a General Industry support for a program preliminary proposal is prepared by a steering committee of key industry people on behalf of in generally this would be the producers of that commodity um and Growers and shippers included in the discussions a list of um uh the actual producers of the commodity is developed by the people who want to establish the uh the marketing order they request a hearing from usda's uh AG marketing service AMS and uh and if it should indicate the degree of Industry support in other words there needs to be a uh a general consensus that this is something to be sought then there is a referendum vote which we'll get to in a second then there'll be essentially a um an administrative process of hearings Etc uh which we go through here in three and four and then administrative law judge presides over um the public hearings on the adoption of a uh uh a commodity marketing order uh those hearings and we we're in the middle of one right now which I'll talk about later um and then uh we'll just go forward here uh and then there's a recommended decision from the alj to the USDA um and then uh ultimately the um secretary bag's office uh will essentially take all of that in um and there as there's a process for finding exceptions the usual kind of administrative procedures act stuff um and then USDA prepares a final decision as to whether uh a uh marketing order um should be adopted or you know is at least appropriate to put for a referendum vote of The Producers that's why you developed a list of all the producers uh and they put together a draft of the of the marketing order then it goes out for a referendum order of The Producers uh and then producers vote on it um in the dairy context um and actually it's it's in all contexts for commodity marketing orders the referendum vote is to it has in order for a marketing order to go into effect two-thirds of The Growers by number or two-thirds of The Growers by volume uh have to approve the adoption of the marketing order and if that is if either of those Thresh holds are met through the referendum vote then the marketing order is adopted and then it can take some time to put it all in place of course these things could be quite involved and as you see from the map they they involve multiple States many of them okay now let's lay a little bit of foundation for the federal milk milk marketing orders uh which is uh important because I like to try or I try to teach this subject by saying that if you keep your eyes on this particular ball which is the green text on this slide then a lot of these confusing details can essentially be set aside if you keep remembering what the objective of the whole thing is now I'll tell you that you know as I say here eyes can glaze over when you start talking about this Beyond this point now the simple uh Federal milk marketing order objective is class one milk which and we'll talk about the classes in a second class one milk is fluid drinking milk that is the simplest to process and and it actually Nets the highest price it is you know the uh when you're is smoke is sold in 100 pound um uh increments and it's got a hundred weight of milk and that's 11.6 gallons and uh a hundred weight of uh milk sold for fluid uh packaging and sale uh is the most lucrative way to sell milk and that's the highest return on the investment all these other things take time cheese Etc all the things you have to make they consume um you know uh time and money in the process and they don't return as much on the investment that is either paid for or invested to produce it so fluid milk is the most lucrative so what's the objective of the uh of the federal milk marketing orders is to spread that benefit from the most lucrative kind of milk you can sell fluid want fluid class one milk across all producers as best as you can and that is essentially the objective you just keep thinking that the best the the highest return to a Dairy producer is if their milk is used as fluid milk well everybody can't be having their milk uses fluid milk we have all these other products and so uh the the point is to try to make sure and by the way the producers are not the ones who generally would make the decisions about what your milk is going to be used for um uh because that's the processor or the handlers uh uh prerogative they're buying milk now you may know what that what that processor is in the business of producing um but geographically sometimes you're stuck with no fluid plant near you and you have to sell for cheese or you have to sell for butter or whatever the circumstances may be or you need to be able a particular area of the country needs to be able to produce a lot of fluid milk particularly when there was school lunch you know when school's in session there's school lunch and milk consumption was what it was let's say in the 50s or 60s and you needed to have that capacity but then when school's out you have a lot more extra milk around and the cows aren't going to stop uh you know producing it so you got to have other avenues for this milk make it into butter Etc Pennsylvania we have this giant butter plant yeah operated by land of lakes uh right outside of Carlisle why is that there that's there because uh Land of Lakes build it themselves because they needed to have some place to uh uh essentially process and a product to produce uh in addition to the fluid uh because they have more milk than the fluid demand and we're living in a world of course where the fluid demand is ever shrinking um so here's the method behind all this there's a market-wide mandatory pool of class one revenues mandatory as we'll talk about in a second but where all the revenues of class 1 Sales are essentially pulled together in a mathematical computation under the authority of the of of the milk marketing order that is imposed upon the processors uh you know by authority of USDA due to the adoption of the marketing order all of those class one revenues are pulled together and then um the uh uh the how much of that giant pool of Revenue is attributable to class one milk is factored and there's a class one price how much is attributable to class two class three class four we'll talk about in a second those there's essentially a monthly system of spreading it around so that they're all the pool everyone who is everyone whose milk is in the pool gets ultimately at the end of the computation which takes a couple months to do they will get one uniform price and we'll go over this a couple of times so that you get that so you're taking all of the class one Revenue you're pulling it together with other revenues everybody that contributes to that gets us gets a uniform price rather than some people getting this higher price because their milk is being used for class one and somebody else is you know getting a lower price because their class is used for or their milk is used for you know powder let's say to export or whatever it might or butter or something which you know is a lesser return on the investment there so that's the idea spreading the wealth around among all the producers because of this class one uh you know more lucrative Market um all right and it's done on a monthly basis and this produces and I'm not gonna you know sugarcoat it this produces no end of problem to try to manage this in a continuing you know month after month uh basis and that's where the you know the devil and the details that is truly where all the headaches in the pint of milk are uh here um okay now let's go to okay this is the classes sorry it took me so long to get to the classes okay fluid one is class uh or a fluid is class one excuse me uh class two is this all the soft products like yogurts and ice cream and uh cream cheese and and cottage cheese and all of those things uh class three is hard cheeses that's your traditional cheeses um and then class four is butter and powdered products for the most part um you know fluid of course is always number one or was always thought to be number one in the uh you know what how much money you're gonna make for selling a 100 weight of milk um uh and you know the others um you know lesser and depending on market conditions you know sometimes there can be some bumping up and down between class two three and four as to what would traditionally follow after fluid as the most lucrative that's kind of gotten shuffled lately and that's caused a lot of problems which we'll try to get to I'm trying to go through this in a way that makes sense without inundating you and hopefully I'm going slow but hopefully we'll that'll help us all right here's a little structure of a little miniature version of how the pooling system works it hopefully it'll get your head into it a little bit so class one milk is set apart here and we're going to talk about that in a minute class one is here because class one milk um essentially unless it is unless certain criteria are met where the milk is where that that plant withdraws their milk from the pool a class one milk is mandatorily to be pooled the revenue from uh from all of that and again this is a mathematical calculation which I'll explain to you how that goes in a second and then um plants can also agree to pull their class two class three and class four now why is that you'd say well there was a time when there was such a milk Market in this country that processors wanted to be a more attractive place to sell the milk there it wasn't a buyer's market it was a more of a seller's market and processors needed to entice people to sell them their milk um for some of these let's say lesser uses like butter or something and so agreeing voluntarily as a processor to pull your class to revenue or your class to uh you know uh sales revenue so to speak um you know would enable you to pay people more essentially in the end for giving you milk or selling you milk that would be used for you know let's say powder um or or butter and so that was needed by processors at one time in order to keep their milk supplies stable and flowing so that's why class one was always the mandatory order uh or the mandatory pooling but the other classes came into Play Because processors wanted that and that helped them uh you know attract a milk supply now things are different now you know things are obviously totally different we have a uh a buyer's market there there is more milk than we need um and we're constantly looking for uh you know new products and new ways to consume the milk that's being produced out there with whether it's exporting whether it's Greek yogurt which uses you know some exponential amount of milk per you know uh per volume of yogurt produced uh things of that nature stuffed crushed cheese pizza for that matter was invented by milk marketing uh mines in order to consume more cheese so um you have all sorts you have this interesting historical dynamic as to what's going on but the bottom line is now if this is how it worked and everybody just okay I delivered my milk and then you figure all this out on a monthly basis how much uh of the entire monthly load this plant uh used for each class and then the federal prices that were set for those classes uh you know it all gets pulled and it's all distributed and everything's everything's fine um everybody who who participated in the pool gets the same amount it'd be great but unfortunately it doesn't work that way because um the money that needs to start flowing immediately you can't wait around uh you know for uh the time necessary or Dairy Producers can't wait around for the time necessary so there's there's basically two parts to it there is a uh an initial Advance price payment that is required by the marketing order and then there is a second process that is a truing up process where then the final uh uniform prices determined and sometimes it's lower than what the advance price was and so you know you you you would like it to always be higher but it depends on what the utilization was and I'll show you a graphic for that in a minute now I know I'm probably losing a few people but let's just hang in I'm going to try to keep it simple from here now this is a graphic this is I'm just going to show you one thing here that kind of uh uh will hopefully make things easier to understand I'm going to draw a line right down the middle here see hookers class one two three and four on the right hand side everything to the left of that is the headache producing internal calculations that go on in order to establish the class one price the class two price the class three price and the class four price um which uh then you know if they get pulled or if the if that particular milk supply is not pooled these um uh these prices apply as the minimum price um so in other words if if milk is not in the pool then the people you know and the contributors to that pool uh and someone is not in the pool in other words their milk did not uh uh get pulled with the rest then they're going to get just the basic minimum price for for the class that was used uh in any event um and there's a two-step process here which is over here on the left this is the these are like the advanced price this is the indicate essentially so some of the advanced price announcements that are made because there is there needs to be money distributed for purchasing milk and then there's this second process that occurs after the months books are closed so to speak and they determine what the total usage was within the entire milk marketing order and then do the distributions from the pool um and and sort of a theoretical pool because uh you know it's all money that's being held by the processor uh but USDA enforces the obligations um to uh either pay more or you know uh make an adjustment depending on the circumstances and now I'm going to show you the next graphic so everything to the left by the way again these are complications in the system of setting these class prices and that is that's where the real uh uh eyes glazing over occurs and there's no way that anyone can understand the calculations that make up the class prices in you know in a one-hour webinar so we're we're not going to deal with that here's a great graph traffic that USDA has put together which explains the the um this truing up process to arrive at a uniform price okay there's two examples here one coming from the bottom with a farmer B at the bottom selling cheese selling milk to a cheese plant farmer a at the top is selling milk to a a fluid milk bottling plant okay so farmer a sells milk to a to a bottling plant uh and that the the processor buys it for 18 dollars per hundred weight that's 11.6 gallons uh and that's the let's let's say that's the announced Advanced uh um uh class one price so uh all right they that sorry there we go all right so that's what happened and let's say that um when the final price is calculated um the uh the final price ends up being um 17 100 weight a dollar goes into this pool to be redistributed um and then let's and you'll see how it gets redistributed in a second farmer B is um uh selling to a cheese plant so the advance price is 16 it turns out that for that month the the actual final price should have been 17 uh then uh that's that extra dollar is going to go out of the pool um and it's going to go to the uh person that supplied there uh milk for cheese because they were shorted a dollar on what turned out to be the final price so you see how this two farmers selling um to two different plants within one milk marketing order uh Geographic uh area and one is um essentially you know they're both getting the same uniform form price but the you know the advance price was in one case a little higher in one case a little lower um so okay this is a little diagram of the federal order uh pricing for July of 2023 and this is the a little bit example of how the uh uniform price ultimately gets calculated um here you have the uh the results of the month of July 2023 within the and this is federal order one within Federal order one um there was this quantity I guess it's two billion pounds of milk and some change the pers the the usage within that uh big you know pot of milk that was utilized or in um Federal order one is set forth here in the percentage column sorry I'm using the pointer on the wrong slide um so class one was 26 of that um class two was 26 class 3 was 30 and class four was sixty percent of that here were the um you know the minimum Advance prices for those uh those various classes and so we don't have the dollar figure here but essentially you just apply those percentages to the dollar figure that is produced and that is how you end up dividing up the revenue that is generated by this you know excuse me by this weight of milk in federal order one and here's a little example of uh the ultimate um in this particular location Suffolk County Massachusetts and they do vary by you know uh because there are different costs and different uh you know locations ultimately the uh uniform price for this particular location in southern County Massachusetts in for federal order one was 1956. um okay I will go forward and talk a little bit about we will we'll we'll skip over this for a second we will talk let's just this is a a nice little graphic that shows you for the year 2021 where Pennsylvania stands in the grand scheme of things Pennsylvania has lost many places in the pecking order of production now this is the total amount of milk in the federal order system and Pennsylvania is right here as number six producer pretty much tied with Michigan we used to be three four uh you know we're getting we're getting jumped over by Matt by Texas in particular and Michigan has really put on a you know a full court press and New York has really jumped up too you look at this 10 years before this and Pennsylvania would have been number three after uh you know probably California and Wisconsin uh New York is really Advanced okay uh this is also within Federal order one it kind of shows you the ranking and the and the amount of milk being produced okay uh okay now there is federal milk marketing order reform that's going on right now as we speak and this is a whole bunch of slides to talk about that and I'm going to go to one of them which is right here uh if we clicked on this Zoom link right now we would be watching a federal milk marketing order reform hearing that is going on right now in order to reform the the calculations uh due to a number of factors that have uh sort of coalesced to make the industry essentially um clamor let's just say for reform of the pricing system um the basic pooling Concepts all you know remain uh uh agreeable to most industry players but the calculations on a lot of these things a lot of the uh components of the uh pricing system have produced results that no one is happy with uh all right let's go to the Pennsylvania portion just to talk about what Pennsylvania does okay now uh Pennsylvania has a thing called the Pennsylvania milk marketing board and it administers a unique Pennsylvania only pricing system which is uh done through what are called uh official general orders um and uh the milk marketing board is made up of three members who hold hearings and then issue orders um and now what did they do well they do a couple of things one thing that the uh Federal marketing or excuse me that the Pennsylvania milk marketing board does that isn't really well recognized is that um it's not even on this slide is that you remember the the uh map where we had portions of Pennsylvania that were not covered by a milk marketing order one of the things that the federal milk marketing uh um or excuse me that the Pennsylvania milk marketing board does is make sure that those Federal order uh prices also are made to apply in the entire uh state of Pennsylvania so that there are in fact um governmentally mandated minimums in all parts of Pennsylvania not just where those orders are located um but I do think that most of the dairy plants are within wherever those orders exist anyway now there are three portions to what the Pennsylvania milk marketing board does it sets a minimum producer price which is uh one thing then it sets a wholesale minimum price which is minimum prices for the milk being sold by dealers and then it sets minimum retail prices so if you've ever noticed in Pennsylvania there's no such thing as a sale on milk um because uh the or at least a you know they they may cut a price but they're not going to go below the government required minimum so there's no uh sale you know a dollar for a gallon of milk like you might see in other states um uh and the point is that uh Pennsylvania has decided to adopt a system like this where these these prices are regulated by the government in order to avoid the downward pressure from retailers on wholesalers meaning processors to cut their prices to the Bone so to speak and the downward pressure from processors to Dairy Farmers to cut their price is to the Bone so all of this Market generated pressure to um the industry to essentially um you know potentially even sell at a loss it's hard enough to make a buck on milk as it is let alone having Market pressures um where retailers are telling you that uh you know well I'm just gonna you know go uh somewhere else and buy my milk or buy milk cheaper uh you can't buy milk cheaper in Pennsylvania because the government sets the minimum wholesale price and the minimum retail price every time you go in a grocery store you buy milk you're paying at least the government established minimum retail price for milk um now interestingly enough this has not necessarily made us stand out that much uh a little bit um in relation to our neighbors in terms of the price of milk here it's probably if anything it's actually had the surrounding states um have brought their prices you know up and have been consistently uh because Pennsylvania isn't really creating any pressure on them so in any leave it now buried in this price calculation of these minimums in Pennsylvania is a thing called the over order premium and the over order premium is another version of the concept of taking the increased Revenue that can be obtained for selling fluid milk and trying to essentially um uh give it back to Dairy Farmers um uh by essentially there is a over order premium that says if your milk is produced and processed in Pennsylvania and then sold retail in Pennsylvania and you can trace that volume all the way through then um you're going to get paid a little bit more for 100 weight of milk and right now the over order premium is a dollar 32 it's a dollar over to premium plus 32 cents for a fuel adjuster for the increases in diesel uh fuel prices because producers have to pay for the transportation of their milk to the factory or to the processor by the way Audrey before I keep going are there any questions in the uh q a actually we do have one and if you've got a minute I'm gonna go ahead and ask it because I think it's a really good one um John agner asks since these orders have to go through the hearing process are these are they basically regulations under the federal administrative procedures act and then does the APA or the federal administrative procedures act govern these regulations and the processes correct and then there are uh absolutely correct and then um you know but but it's a instead of being a reg it's subject to the administrative procedures act you know administrative uh uh proceeding rules um in other words it's not a reg you know but it's a it's a order produced as a result of an administrative proceeding that is governed by the administrative procedures act um and um so that's sort of like the other side to a regulation you know it's an order from an agency developed after a process that is regulated similarly regulated um so good question okay very good question we've got about three minutes so all right okay so there has been a lot of controversy over the over order premium and uh what's been happening is that in two things occur you know when you say that you that every single time you buy a gallon of milk in the state of Pennsylvania you're paying a gov a state government mandated minimum price that essentially you know is uh um uh guaranteed Revenue to the retailer for every gallon they know exactly what they're going to get um so what's to say why don't they just go to uh you know Delaware Maryland uh West Virginia Virginia wherever and buy their milk Dirt Cheap where there is not a mandatory minimum wholesale price um and then bring that milk into Pennsylvania and sell it at this higher uh minimum retail price in Pennsylvania and that is exactly possible and it does go on so that produces a bit of uh uh dissatisfaction with the Pennsylvania system because people who are not actually answerable to Pennsylvania producers for the this over order premium are getting the benefit of these minimum prices and that's the same with the processor level because a someone who operates a processing plant would say well why don't I just get all my milk over across the Line in New York bring it into Pennsylvania Process it here and when I sell it here I got a guaranteed government minimum wholesale price that they that you know the people in New York don't have um and so I'm making out um and that actually can go on too and there's many other permutations of that where milk ends up or or those who sell milk at wholesale or retail get the benefit of our minimum pricing system but don't pay the any dairy producer um for that benefit the whole pricing system is based upon an assumption that every gallon of milk in Pennsylvania was produced by a Pennsylvania producer and was sold at wholesale in Pennsylvania and that just is not is so far from the truth now um you know with the Advent of you know the ability to move milk around Refrigeration trucks you know the you know the whole modernization of interstate commerce to the point where it is today that the essential Foundation of this Overture premium is a bit faulty and so at this point the Pennsylvania Department of Agriculture there are legislators there are many many dairy industry stakeholders primarily from the from the producer's standpoint all of whom have essentially uh taken a position one way or another that the over order premium as administered by Pennsylvania's milk marketing board at this point in time is no longer of help and is in fact uh potentially too fraught with problems that it may even be hurting and one of the other things is that there is uh you know Pennsylvania is a milk excess state so we produce way more milk than we drink only about 15 to 20 percent of the milk that is produced in Pennsylvania um ever gets the this over order premium the other uh you know 85 to uh 80 or 80 to 85 percent somebody's getting a benefit of this minimum pricing down the line when they're not paying it at the farm gate so to speak to a producer so um there's a lot of dissatisfaction there are bills in the legislature now to loosen that up and to change that entire thing so if you hear the whole issue about the over order premium being discussed just know that it is a Pennsylvania only benefit that is a bit Antiquated in its calculation and its Administration and there is a large movement afoot in state government to do away with it and retool the concept of when you buy a gallon of milk maybe Dairy Farmers should get some direct benefit that is that is tracked by the government um now the the third real word is milk tax and no one wants to say that but the bottom line is that's what's a foot right now is a retooling of a Pennsylvania program to benefit our producers specifically all right so with that in mind I will stop all right well great thank you so much Brooke that was wonderful um thank you to everyone who attended we encourage you to go ahead and register now for upcoming programming pesticides again that recertification credit is available um seed laws Fair labor standards acts and Paka coming up um if you have any questions please feel free to email me personally aet17 psu.edu my email is also on our website uh agua.psu.edu and we hope to see you or hear from you in our future programming thank you so much bye everyone