Changes to Price Reports Up for Grabs

by Stephen Barlas, Washington Editor

The Agriculture Department is considering whether to make changes in the mandatory product price reporting program that went into effect in early August.
Manufacturers of nonfat dry milk, cheese, butter and dry whey are pushing the USDA to clarify what kinds of sales are covered with respect to forward contracts and the deadline for setting the prices for those contracts in order for the sales prices to be included in the weekly reports dairy manufacturers send to the USDA’s National Agricultural Statistics Service (NASS). Reporting has been voluntary since 2000, and almost all dairy product companies have complied.
As always with dairy policies established by the USDA’s Agricultural Marketing Service, the mandatory reporting dictate is part of a very complex system. In general terms, manufacturers of cheese, butter, nonfat dry milk and whey report the prices they receive for their products, how much of each they sold and, in the case of barrel cheese, the moisture content of the product. The AMS takes the data in those reports and establishes, on a monthly basis, the minimum price for each of the four classes of milk, e.g. Class II (yogurt, ice cream and cottage cheese). Those minimum prices are applied to all of the milk marketing orders around the United States.
It is important that the price reports be accurate, of course, because those reports dictate the intricate balance between prices received by dairy farmers and the price of milk paid by the Deans and Dreyer’s Grand Ice Creams of the world.
Lurking in the background here is the fact that some manufacturers of nonfat dry milk included some long-term, fixed prices sales data in their weekly reports in the recent past. NASS guidelines explicitly exclude the reporting of forward pricing sales in which the selling price was set 30 days or more before the transaction was completed. NASS went back and obtained revised weekly reports from a number of companies, which resulted in revisions of average weekly price of nonfat dry milk ranging from -0.8 to 8.5 cents per between April 2006 and April 2007.
Of course, it was too late at that point to revise the minimum milk price in the marketing orders. However, as a result, the AMS estimated that dairy farmers lost about $50 million as the result of milk prices being lower than they should have been had the nonfat dry milk prices reported by dairy companies been accurate.
That political friction between dairy farmers and dairy manufacturers hangs over the interim final rule the AMS published on August 2. The agency asked for comments on some aspects of the mandatory price reporting system, and got them in spades.
So there may be some changes to the mandatory reporting program coming up. The big issue is the current requirement that companies only report the prices they receive when those prices are set within 30 days of the sale, except for sales through the Dairy Export Incentive Program.
However, the National Milk Producers Federation wants sellers of nonfat dry milk to include prices set up to 90 days before the product ships in the case of export sales. Patty Stroup, group manager for dairy at Nestlé Business Services, opposes that change to the interim final rule, as do almost all other dairy product manufacturers. “I don’t see any argument from milk producers that would legitimize changing the interim final rule with regard to the 30-day window,” Stroup says.
Stephen Barlas has been a full-time freelance Washington editor for business and trade magazines since 1981.