Editorial Comment Publisher/Editor



Another Interesting Year For Federal Orders

Dick Groves
Cheese Reporter

February 9, 2024

The year 2023 will long be remembered as the year in which the dairy industry tackled, or at least started to tackle, some long-overdue updates to the federal milk marketing order program.

But setting aside the just-concluded national federal order hearing, last year turned out to be another in a long line of interesting and volatile years in the federal order program. Some recently released statistics, reported on our front page last week, help illustrate this point.

For starters, a record volume of milk was pooled on the 11 federal orders in 2023: 158.45 billion pounds, to be exact. That broke the previous record of 156.1 billion pounds, which was set in 2019.

There are a couple of points worth noting about this new federal order volume record. First, 2023 was just the fifth full year for the California federal order, but adding California and its potential of over 40 billion pounds of milk to the federal order system has translated into only two new volume records and three below-average volume years.

Second, that’s because depooling continues to alter the volume of milk being pooled, in some years more than others, but in all recent years to a certain extent. California is a great example here; in 2023, a total of 26.4 billion pounds of milk was pooled on the California order (which covers the entire state), which means somewhere around 14 billion pounds of milk was depooled in California.

But California wasn’t the only order that saw significant volumes of milk being depooled last year. As the latest figures from USDA show, basically any order with significant Class IV utilization saw considerable volumes of milk being depooled.

This can be illustrated simply by looking at the volume of milk being pooled in Class IV every month last year. That volume ranged from a high of 3.7 billion pounds in April to a low of just 803 million pounds in August.

And that can be easily put into historical perspective by going back to 2019 and 2020, when Class IV volume totaled 30.5 billion pounds and 41.5 billion pounds, respectively.

A fair amount of milk was also depooled in Class II last year. Class II volume in 2023 totaled 14.8 billion pounds, which is down more than 5.0 billion pounds from 2021’s record high (but up 606 million pounds from 2022).

Class III volume set a new record last year, at 85.25 billion pounds. Class III volume has now topped 80 billion pounds for two straight years, something that of course wouldn’t be possible without the California order and its 16.6 billion pounds of Class III milk in 2023 and its 14.7 billion pounds of Class III milk in 2022.

Not that the presence of the California order guarantees higher Class III volumes. It may be recalled that, in the turbulent, COVID-upended year of 2020, Class III volume for the entire year totaled just 32.9 billion pounds, with the California order contributing all of 673 million pounds to that total.

Despite record volumes in 2023 and 2022, Class III is still not “living up to its potential.” That is, volumes aren’t quite as high as might be expected, given recent years.

Just to cite one example: while Class III volume on the Upper Midwest order reached a record 30.5 billion pounds last year, monthly volumes trailed 2022 volumes in each of the last five months of the year. Had 2023 volumes during the August-December period matched volumes of that same period in 2022, Class III volume for the entire year would have been almost 1.2 billion pounds higher than it was.

So what kind of volume would the federal order system be looking at if there was ever a “normal” year? That is, if Classes II, III and IV all saw record volumes in a single year?

If that were to happen, the volume of milk pooled in all 11 federal orders would total around 187 billion pounds, up almost 30 billion pounds from last year’s record.

But that’s probably never going to happen, for at least two reasons. First, depooling isn’t going to go away anytime soon. Even if the spread between Class III and Class IV prices narrows, and it will at some point, not all milk in Classes II, III and IV is going to be pooled every month in the future. The volumes of Class III milk in the August-December periods in 2022 and 2023 illustrate that point.

Second, while there are very few guarantees in the federal order program, here’s one: Class I volumes are going to continue to decline. Last year’s Class I volume of 40.4 billion pounds was the lowest since 1975, when Class I utilization was 57.9 percent (it was 25.5 percent, a record low, in 2022).

Notably, 2023’s Class I volume was lower than it was in 2017, the last full year without the California order.

As noted above, if there was little or no depooling, the total volume of milk pooled on all 11 federal orders would be around 187 billion pounds. With no Class I milk being depooled, Class I utilization would actually be somewhere around 21 percent.

Federal order volumes will continue to be volatile and at least somewhat unpredictable in the future. About the only guarantee is that Class I volumes will continue to fall....


Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 45 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com

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