The USDA issued its Federal Order reform final decision this week, outlining changes in U.S. dairy pricing. A producer referendum will be held in December or January after which a final rule will be published.

StoneX analyst Nate Donnay says there were only minor changes between the Recommended Decision released July 1 and the Final Decision. He said, “It’s expected that all orders will vote to accept the new language, but there have been rumblings that the Upper-Midwest might be a close vote.” We should know the results somewhere between late January and mid-February.

The implementation timeline will also be issued at that point, he said, but, “From a risk management perspective, the timeline is the biggest unknown. The changes could start as soon as March pricing, or possibly delayed a few months. One thing we do know is that the implementation of changes to assumed component content will be delayed six months from the other changes.”

Speaking in the Nov. 18 Dairy Radio Now broadcast, StoneX broker Dave Kurzawski said USDA is raising the assumed costs of converting milk into bulk dairy products, often referred to as the make allowance, allowances that haven’t changed in over 10 years, despite the fact that costs have risen in that time.

Federal order minimum prices that manufacturers have to pay producers will be reduced, according to Kurzawski. Looking back on the past decade or so, had these new formulas been in place, the Class III price would have been about 16 cents lower, while the Class IV would have been down about 47 cents.

It’s all about the relationship between finished dairy product prices and the prices that have to be paid for the milk, he said. It’s really a minimum price, a minimum wage for dairy farmers essentially.

In the early 2000s, dairy farmers often saw over order premiums such as $1.50 per hundredweight for example, which occurred due to the competitive nature of buying milk. Those premiums have since dwindled in pretty much every Federal order, he said, as the costs of producing dairy products have gone up.

“This change will lower the minimum prices and usher in a time when those over order premiums will start to go up and the competition for milk will go up,” he said. Class I will come in a little higher, while Class II, III, and IV will be lower but we can still go to $12 milk and we can still go to $25 milk, it doesn’t change that dynamic, it just changes the relationship between the two, he concluded.

This is a brief outline of some complicated formula changes. Best to talk with your local cooperative about the changes will impact your operation.

Meanwhile, the USDA again raised its 2024 milk production forecast in its latest World Agriculture Supply and Demand Estimates report, based on the most recent Milk Production report and lower reported milk cow numbers for the third quarter of 2024 being more than offset by higher output per cow. The milk forecast for 2025 was unchanged.

2024 production and marketings were projected at 226 and 225 billion pounds respectively, up 200 million pounds on both from last month’s estimate. If realized, both would be down 400 million pounds or 0.2 percent from 2023.

2025 production and marketings were projected at 227.7 and 226.7 billion pounds respectively, unchanged on both. If realized, both would be up 1.7 billion pounds or 0.75 percent from 2024.

Import forecasts for 2024 were unchanged, on both a fat basis and a skim-solids basis. The export forecast was unchanged on a fat basis. On a skim-solids basis, it was raised on higher expected shipments of lactose. Imports for 2025 were unchanged on a skim-solids basis but raised on a fat basis on expected higher shipments of butter and cheese. 

The export forecast on a fat basis was raised due to higher cheese and butterfat-containing products. Skim-solids exports were raised on higher whey-containing products and dry skim milk products.

The 2024 butter price forecast was reduced, as prices have continued to fall from the relatively high levels they maintained for much of the year through late-September. The cheese price was unchanged. Both nonfat dry milk (NDM) and whey price forecasts were raised due to strong demand for both products. 

The butter price forecast for 2025 was lowered due to relatively higher inventories heading into the 2024 holiday season. The cheese price forecast was raised on higher prices and tight inventories in late 2024. Whey and NDM price forecasts were raised based on stronger domestic and international demand.

The 2024 Class III milk price forecast was unchanged at $19.05 per cwt. and compares to $17.02 in 2023 and $21.96 in 2022. The 2025 average was estimated at $19.30, up 35 cents from a month ago.

The Class IV price forecast was lowered, with lower butter prices more than offsetting higher NDM, and was projected to average $20.75, down a nickel from last month’s estimate, and compares to $19.12 in 2023 and $24.47 in 2022. The 2025 average was projected at $20.30, also down a nickel from last month.

This month’s U.S. corn outlook calls for lower production and ending stocks.

Corn production was forecast at 15.1 billion bushels, down 60 million or less than 1 percent from last month and down 1 percent from 2023. Yields are expected to average a record high 183.1 bushels per acre, down 0.7 bushel from the previous forecast but up 5.8 bushels from last year. Area harvested was forecast at 82.7 million acres, unchanged from the previous forecast but down 4 percent from a year ago. Ending stocks are down to 1.9 billion bushels and the season-average corn price was unchanged at $4.10 per bushel.

The soybean outlook includes lower production, exports, crush, and ending stocks. Soybean production was forecast at 4.46 billion bushels, down 121 million or 3 percent from a month ago, on reduced yields, but up 7 percent from 2023. Yields are expected to average 51.7 bushels per acre, down 1.4 bushels from the previous forecast, but up 1.1 bushels from 2023. Area harvested was forecast at 86.3 million acres, unchanged from the previous forecast, but up 5 percent from 2023. Ending stocks were lowered 80 million bushels to 470 million. The season-average soybean price forecast was unchanged at $10.80 per bushel, with soybean meal unchanged at $320 per short ton.

The U.S. corn harvest was 95 percent completed, as of the week ending Nov. 10, up from 91 percent the previous week, 9 percent ahead of a year ago, and 11 percent ahead of the five-year average. Soybeans are at 96 percent, up from 94 percent the previous week, 2 percent ahead of a year ago, and 5 percent ahead of the five-year average.

StoneX Nov. 11 Early Morning Update stated that holiday cheese demand “doesn’t seem to be so joyful,” and said new plant capacity is coming online now and into 2025 and buyers may be holding off buying, working down inventories while waiting for the forthcoming new supply. But “U.S. prices are now widely competitive on the global stage and domestic buyers may have competition.”