In the dairy industry, the United States Department of Agriculture USDA has taken measures to help ensure that dairy farmers receive a fair value for their milk throughout the year. The Federal Milk Marketing Orders program is designed to do just that.

Because the program impacts the price of milk, and consequently all dairy products, it is beneficial for those interested in using Dairy futures and options to have at least a basic understanding of how this program works.

This module will provide an overview of Federal Milk Marketing Orders program and its role in the industry.

Federal Milk Marketing Orders are intended to ensure that dairy farmers receive a reasonable minimum price for their milk by instituting specific provisions under which dairy processors purchase fresh milk from the dairy farmers that supplying a specific marketing area.

A marketing area is generally defined as a geographic area where processors compete for packaged fluid milk sales, although other factors may be considered when determining the boundaries of a marketing area. Federal orders serve to maintain stable marketing relationships for processors and farmers supplying specific marketing areas, thus helping to facilitate the complex process of marketing fresh milk. 

There are currently 10 milk marketing orders in the United States, each administered by a regional office:

• The Pacific Northwest
• Arizona
• Southwest
• Central
• Upper Midwest
• South East
• Mideast
• Northeast
• Appalachian
• Florida

Each milk marketing order includes a classified price plan, a system of minimum prices, the terms of the marketing order and provisions for administering the order.

To ensure that producers receive a fair value for their milk, the USDA applies a series of class formulas to determine the price for each of the four classes of milk:

• Class 1 - the fluid milk that consumers use for drinking
• Class 2 - milk used in products such as cream, milk shake mixes, cottage cheese and yogurt
• Class 3 -  hard cheese
• Class 4 - butter and dried milk

The Agricultural Marketing Agreement Act authorizes Federal Milk Marketing Orders; the USDA amends and establishes them through a hearing process overseen by the Secretary of Agriculture. During this hearing process, the dairy industry can submit proposals and evidence to support the establishment of and amendments to Federal Order provisions.

The establishment and amendments to a Federal Order become effective only after approval by dairy farmers through a referendum process. This process allows the Federal Order provisions to meet the changing needs of the dairy industry.

The Federal Milk Marketing Orders program assures dairy farmers that they will get a reasonable minimum price for their milk throughout the year.

In addition, it assures consumers of an adequate supply of milk to meet their needs and helps prevent wild fluctuations in price through alternating periods of heavy and light milk production.

Learn more about the Federal Milk Marketing Orders program, including the formulas used to determine minimum price levels for each class of milk, by visiting the USDA website.