Dairy risk management options at times ineffective in 2020


Dairy risk management options at times ineffective in 2020

American Farm Bureau’s chief economist says Producer Price Differentials, or PPDs, collectively cost dairy farm families more than $3 billion in income during 2020.

John Newton tells Brownfield because of the record-large milk price spreads, and a 2018 Farm Bill change to Class I milk pricing rules, PPDs reached record-low levels in component pricing orders.

“The all milk prices doesn’t necessarily reflect the extent of negative PPDs that farmers received, neither does Dairy Revenue Protection because its based on the Class III market, and neither does the use of a futures or options contract so effectively what these negative PPDs did is create a very, very wide basis risk that made a lot of these risk management tools ineffective,” he says.

Newton says this year has highlighted unintended consequences of changes to milk pricing and he expects needed changes to the Federal Milk Marketing Order and farm bill dairy provisions to be a major priority moving forward.