Milk Marketing Test 2.

Milk Class

Pertains to how the milk is used or what it will go to make

Milk Grade

Refers to the sanitary conditions that qualify milk for fluid consumption

Classified Pricing

Structure of prices that differ according to category of use

Multiple component pricing

Factors in other components of milk for pricing

Make allowance

An estimate of dairy producers cost of converting milk into commodity dairy products

Mailbox price

The net price received by producers for milk

Pooling

How dairy farmers share the benefits of classified pricing of milk

Blend price

A minimum weighted average based on the proportion of grade a milk allocated to use in each class

Producer price differential PPD

The difference between the handler value and the component value, divided by the total pounds in the pool

Uniform statistical price

The PPD added to the Class 3 price

Milk Base

A share of milk base that is sold and the producer must make that much milk to fufill it

what are the broad goals for milk marketing from a consumers standpoint

• adequate supply

• Reasonable and competitive prices

What are the broad goals for milk marketing from a producers standpoint

• reasonable prices

• Opportunity for profit

• Secure market

How is milk marketing different from many other agricultural commodities

• it is a perishable product

• Daily need for fluid milk

• Inelasticity of supply and demand

• Wholesale pricing by weight, retail by volume

• Highly regulated to assure fair price, fair trade, adequate supply

What is the difference between how Grade A and Grade B milk can be utilized

Fluid products can only be made from Grade A

Grade B can be used for manufactured products

What percent of milk marketed in the United States is marketed through a federal milk marketing order (FMMO)

80

List the things that FMMO’s do

• regulate fluid milk processors

• Provide framework to make buying and selling a more orderly process

• Allow market supply and demand to determine the minimum price for milk

• Promote equity among handlers by establishing identical minimum classes for all handlers similarly located

• Enforce timely minimum payments for producers

• Provide market statistics and economic analysis

They do not set retail prices

What are the monthly functions of FMMO’s

• Agricultrual marketing services survey commodity prices

• Announce class prices

• Verifying milk samples

• Calculate pool and minimum prices

• Verify producers payments

• Audit handler records

• Publish market information and statistics

Overall provide stability in the industry

What are the three C’s of FMMO pricing

Commodity, component, class

The US government supports the price of milk by purchasing which three dairy commodities

Cheese price, butter price, and nonfat dry milk

Why are the commodities above purchased?

If there is over production they buy the milk to stabilize milk pricing and they will put the milk into government system such as schools

Which commodities are used in the survey

Cheddar Cheese, butter, nonfat dry milk, and dry whey

List the four milk classes and the dairy products that are included for each class

Class 1- beverage milk

Class 2- Soft products

Class 3- Cheese and cream cheese

Class 4- Butter and dried products

What other factors affect the net price they receive?

• quality premiums

• Premium for not using BST

• Hauling charges

• Other marketing charges

Why is a blend price used

It is a weighted average based on how the milk is used and is used to average the milk prices and creates fairness based on where they live

What factors affect the blend price that farmers receive for their milk

• Commodity Prices

• Class Prices

• Class utilization

• Composition

What three parts of the milk check are under producer control?

• Volume of milk shipped

• Component levels through nutrition

• Milk quality

What do state milk orders/commisions do?

• Adiut market usuage

• Determine call I and II usuage

• Set class 1 and 2 minimum prices

• Maintain historical records

• Maintain a base excess plan

Do state milk commissions/orders have the power to set minimum retail prices?

No

What are the characteristics of Virginia Milk Base?

• closed based system/fixed by the market

• Virginia milk commission estimates milk needs/adjust once a year

• Producer acquire base from granting agency

• Use it or lose it/ you have to produce as much milk as you have base

State milk orders/commmisions set prices by formula. What Items are included in the formula?

• us index of prices

• State index of prices

• Price of 16% dairy feed

• Cost of market basket of food

• Weekly earnings of factory worker

• Federal orders pricing in neighboring markets

What things does the Virginia Milk Commission do?

• assures a constant supply of fresh and wholesome grade A milk at fair and reasonable prices

• Maintains an allotment (base) system

• Licesences all the milk processors and distributors in VA

• Assigns milk allotments to all licensed processing distributors

What doesn’t the Virginia Milk Commission do?

-control retail and wholesale pricing

-establish pricing that guarantees a producer or distributor a profit

-regulate health and nutritional requirements of fluid milk

-receive any form of general fund revenues

-regulate control or supervise non-fluid milk products

What is the purpose of milk supply control?

To equalize supply and demand

What are the top five dairy cooperatives in the US based on member milk volume

• dairy farmers of America

• California Dairies Inc

• Edge dairy farmer

• Land O Lakes Inc

• Select milk producers

Be able to make calculations related to milk base, milk prices, and payback on base purchases

What three major alternatives does a dairy producer have for marketing their milk?

• private supply contract

• Cooperative

• Produce, process, and retail your own milk

What are the key considerations when making the decision on which alternatives to use

Price and security risk

What services do milk marketing cooperatives provide for its members?

• bargain for over order prices

• Guarantee processor supply of milk

• Dispose of surplus

• Quality control

• Represent members in the government actions

• Control supply

• Sell supplies

• Process milk

What percent of the milk produced in the US in 2022 was marketed though the top 50 dairy copoperatives

81%

What is the purpose of the dairy margin coverage program?

USDA program that you buy insurance based on margins over feed cost so if the margin between milk price and feed cost gets to tight it kicks in as insurance

What are the program objectives of FMMOS

-establish minimum uniform prices

-Ensure proper payments

-provide market information

How many FMMOs exist today and how many use MCP

11 and 7 use MCP

Which USDA agency surveys dairy plants and calculates monthly average prices of dairy commodities

NASS

Futures and or options for what dairy commodities are traded at the Chicago mercantile

• butter

• Cheese

• Dry whey

• Nonfat milk

What were the two original components of the Cooperative working together CWT?

• herd retirement

• Export assistance

What program administers the CWT program

National Milk Producers federation

What is the major thrust of the CWT today?

• bring long term price relief and stability to dairy farmers by more closely aligning supply and demand

Since 1975, the overall consumption of dairy has

Increased

Since 1975, Fluid milk consumption has

Decreased

Since 1975, Whole milk consumption has

Declined but is starting to increase

Since 1975, cheese consumption has

Steadily increased

What are the monthly functions of FMMO’s

• Agricultrual marketing services survey commodity prices

• Announce class prices

• Verifying milk samples

• Calculate pool and minimum prices

• Verify producers payments

• Audit handler records

• Publish market information and statistics

Overall provide stability in the industry

What are the three C’s of FMMO pricing

Commodity, component, class

Which commodities are used in the survey

Cheddar Cheese, butter, nonfat dry milk, and dry whey

What percent of milk produced in the Us in 2022 was marketed through the top 50 dairy cooperatives

81%

What is the purpose of the dairy margin coverage program?

USDA program that you buy insurance based on margins over feed cost so if the margin between milk price and feed cost gets to tight it kicks in as insurance