NY Commissioner Asks USDA To Consider Class I Milk Price Floor

New York State Agriculture Commissioner Patrick Hooker recently wrote to USDA
Secretary Thomas Vilsack encouraging him to consider the benefits of
establishing a national floor for the Class I prices. By doing so, Class I
prices for fluid milk would ultimately be de-coupled from manufactured classes
of milk, which are typically lower and drive down the price farmers receive for
their product as a whole.

I am writing to add our voice to those you heard in New England in saying our
current system is outdated, the Commissioner said. In fact, the current system
devalues fresh, locally produced milk by directly connecting its price to the
value of manufactured products, which primarily compete in a national and
international market.

If implemented immediately and at the suggested level of $18.50, establishing a
Class I floor could help ensure farmers a reasonable and more stable milk price
that more fairly reflects the higher costs of production and distribution of
fluid milk. In New York, that could mean an extra $15.5 million per month for
dairy farmers and the potential of $465 million annually for the upstate economy
when one includes the economic multiplier effect of milk production in New York

The Commissioner added, While it may be challenging to sift through the many
options and diverse opinions from the dairy industry, the fact remains that
doing nothing is in fact a choice and one that will have potentially
disastrous consequences on the nations dairy farmers. I ask you to consider
establishing a floor for the price of fluid milk immediately in order to ensure
a fresh local food supply for our consumers at home, and appropriately
compensate those farmers who produce it.

Class I fluid milk is the most perishable of all dairy products and one that is
usually consumed within a couple hundred miles of where it was produced and
within several days of when it was processed. As an essential staple for most
households, it is one of the least price sensitive dairy products on the market
and offers the greatest potential for a stable pricing base for milk.

New York belongs to a region that produces more than 20 percent of the nations
total milk supply. The northeast, consisting of New England, New York, New
Jersey and Pennsylvania, also has the highest Class I utilization by volume and,
outside of the southeast region of the country, the highest rate of Class I
utilization. This means northeast farmers are subject to greater production,
balancing and transportation costs to fulfill urban fluid markets than farmers
in other parts of the country whose milk primarily goes directly to
manufacturing plants.

The dairy price collapse of 2009 was one of the worst in decades, resulting in
unprecedented losses for producers. In New York, the average blend price for the
year was $12.26 per hundredweight, down from $17.87 in 2008, and well below the
cost of production. As a result, many dairy farmers incurred losses of around
$5.50 per hundredweight which translates into about $100 per cow per month. For
an average size dairy farm in New York, approximately 100 cows, the monthly loss
was $10,000 per month.

Based on our analysis for the January September 2009 period, flooring the
Class I mover at $18.50 per hundredweight, would have resulted in a blend price
of about $14.91. This would have increased the price paid to producers $3.34 per
hundredweight during this period. While not enough to break even, it would have
dramatically lessened the impact of the overall milk price decline and consumers
would have avoided price fluctuations experienced at the marketplace.

The economic impact of New Yorks dairy industry is over $10 billion in New York
State, and $50 billion regionally. New York has 6,200 dairy farmers with an
average herd size of about 100 cows. Studies have shown that one dairy cow
generates around $15,000 in economic activity that is typically spent locally
benefiting feed suppliers, equipment dealers, and small businesses in upstate,
rural communities.


NYS Department of Agriculture & Markets