April 24, 2021 Dairy Star - 1st section - Zone 1

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Volume 23, No. 5

Six factors that drive PPDs

Bozic demysties values in federal marketing orders

April 24, 2021

“I was like a stone. I couldn’t stop staring at what was happening.” – MaryBeth Seykora

Thrown a curveball

By Jennifer Coyne jenn@dairystar.com

Negative producer price differentials are not a new occurrence in the dairy industry, but with the inuence of formula changes on federal milk marketing orders and industry trends, PPDs have recently caused chaos on the milk check. “Until last year, negative PPDs were always a short-term phenomenon,” Dr. Marin Bozic said. “The markets would have steep rallies but then with the intricacy of milk pricing, it would smooth out from one month to the next. Never did we have nine of the 10 consecutive months of negative PPDs. We’re here to have a frank discussion on what is driving this.” Bozic is an assistant professor of applied economics at the University of Minnesota. In an educational webinar co-hosted by Minnesota Milk Producers Association and Wisconsin Dairy Business Association April 13, Bozic explained six factors that create PPDs and why that value has been below zero for much of the last year. PPDs were developed as a way to create pricing fairness for each dairy farmer in a FMMO despite what the milk was processed for. “Revenue pooling is a noble concept,” Bozic said. “In theory, theory and practice are the same. In practice, they are not.” Long-term trends in utilization rates When FMMOs were rst developed as a way to protect against abusive power with large milk buyers at the end of World War II, two-thirds of uid milk pooled was processed for beverage. For this reason, the revenue from Class I was redistributed to milk pooled in other classes. In 1998, that value decreased to 45% and the last major FMMO reform took place. Over the years, a larger portion of milk produced in the United States has been used for manufacturing and less for beverage consumption. In 2019, uid milk pooled for beverage was as low as 28%, Bozic said. “Once we’re back to normal, post-pandemic and when Class III and IV converge, we believe we will nd Class I to be 1% lower still,” Bozic said. “Simply put, at its core, there is not enough uid milk to make FMMO work as it was designed.” Rising protein test Over the last decade, dairy farmers have increased the amount of solids they sell. In the Upper Midwest, FMMO 30, the average protein test was 3.04% in 2008-09; in 2020, that value rose to 3.14%. While the tests have risen, accounting for that change in PPDs has not. “When Class I processors pay to pool milk, that’s based on skim milk pounds per hundredweight, not protein or other solids. On the other hand, when those same processors take money from the pool, then Turn to PPDS | Page 5

KRISTA KUZMA/DAIRY STAR

Brian and MaryBeth Seykora stand in front of all that is leŌ of their dairy barn that was destroyed by a re April 8 on their farm near Owatonna, Minnesota. Twenty-nine of their 57 cows perished due to the re.

Seykoras lose 29 cows in barn re

“I got a call from my brother at 6:54 p.m. while I was watching the game, and I got here (to the farm) by 7:15 p.m.,” Brian said. “By that time, you couldn’t By Krista Kuzma get in the barn anymore.” krista.k@dairystar.com The Seykoras could only watch as their 45-stall OWATONNA, Minn. – While Brian and Ma- hip roof tiestall barn went up in ames on their farm ryBeth Seykora were watching their sons, Matt and near Owatonna. Mitchell, play baseball the evening of April 8, their “I was just numb,” Brian said of that moment. “I own lives were thrown a curveball. was trying to think of what to do like nding a home for the cows that got out. There wasn’t any emotion really until about Sunday.” MaryBeth felt the pain that night. “I was like a stone,” she said with tears. “I couldn’t stop staring at what was happening. I just thought of how much work he (Brian) had done and all the memories.” Earlier in the evening, two employees had done chores for the Seykoras so they could watch their sons play baseball. Brian and MaryBeth split up so each son would have a parPHOTO SUBMITTED ent at their game. The A re engulfs the Seykora family’s dairy barn April 8 on their farm near Owa- Turn to SEYKORA | tonna, Minnesota. Page 6

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