Pennsylvania 'Skims' Over-order Milk Premium To Compete

Combination of market factors forced Pennsylvania Milk Marketing Board to cut over-order milk premiums on Class I milk, according to board chairman.

Published on: Jun 25, 2013

Last week, despite rigorous opposition, Pennsylvania Milk Marketing Board reduced the overall Class I milk premium price paid by in-state processors for in-state milk by a total of 83 cents – or 31% – for the six-month period beginning July 1, 2013.

That includes a 25-cent per hundredweight cut to the over-order premium – to $1.60, plus a 58-cent per hundredweight cut in the add-on fuel adjuster – dropping it to 25 cents.

Over-order premiums reflect more than milk production costs, explains PMMB Chairman Luke Brubaker. The previous over-order premiums had begun to adversely impact in-state sales of Class I milk handled by in-state processors. The approved total over-order premium will still be $1.85 per hundredweight, and still higher than the premium paid on all classes of milk in nearby markets, he adds.

FUTURE EFFECT: "Significant reductions in the (over-order) premium can make the difference between us taking out a loan to expand operations or not," suggests Richard Ebert.
FUTURE EFFECT: "Significant reductions in the (over-order) premium can make the difference between us taking out a loan to expand operations or not," suggests Richard Ebert.

"Based on all of the evidence we had available at the hearing, we set the over-order premium at a level consistent with, but still higher than, surrounding markets and that'll have a greater positive impact on Pennsylvania's dairy industry in the future," Brubaker notes. The adjustment will also reduce help retail milk prices, he adds.

Producers raise concerns

PMMB's decision was reinforced by other testimonies and general agreement that milk prices would be relatively strong during the second half of 2013. But Pennsylvania Farm Bureau testimonies focused on the already tight dairy farm margins due to all-time high production costs – and now even smaller milk checks for Class I milk.

"Dairy farmers need every penny they can get to help ease tight profit margins," says PFB Vice President Richard Ebert, chairman of PFB's State Dairy Committee and a Westmoreland County dairy farmer. "Our cost of production is significantly higher than it was a few years ago.

"In fact, the majority of input costs have continued to go up, with some costs nearly double the cost level of 2009."

PMMB's decision sends a discouraging message to the next generation of milk producers, he adds.

"We are trying to picture a future where my son Josh can quickly come on board as a partner on the farm," notes Ebert. "But we'll have to work even harder to sustain cash flow, particularly if current conditions remain the same."