An Evaluation of Federal Order Reform

Bailey, Kenneth W.; Tozer, Peter R.

doi:10.3168/jds.s0022-0302(01)74556-0

Cited by 4 publications

(5 citation statements)

References 2 publications

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“…Step 5: Class I pricing reform, $/cwt Step 6: Depooling and structure changes, $/cwt solids per hundredweight of skim milk. These component tests reflect the average milk solids tests in late 1990s, before the last major federal order reform which occurred in 2000 (Bailey and Tozer, 2001). However, as demonstrated previously, average component tests have since increased considerably.…”

Section: Policy Aspectssupporting

confidence: 75%

Negative producer price differentials in Federal Milk Marketing Orders: Explanations, implications, and policy options

Bozic

Wolf

2022

Journal of Dairy Science

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Section: Policy Aspectssupporting

confidence: 75%

Negative producer price differentials in Federal Milk Marketing Orders: Explanations, implications, and policy options

Bozic

Wolf

2022

Journal of Dairy Science

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“…Dairy producers shipping milk into United States federal milk marketing orders faced a new milk pricing system effective January 1, 2000, as a result of federal order reforms implemented by the USDA and initiated by the US Congress (Bailey and Tozer, 2001). Seven of the 11 federal milk marketing orders that were created use a multiple component pricing system that pays dairy producers on the basis of milk fat, true protein, and other dairy solids.…”

Section: Introductionmentioning

confidence: 99%

Economic Returns to Holstein and Jersey Herds Under Multiple Component Pricing

Bailey

Jones

Heinrichs

2005

Journal of Dairy Science

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This study analyzed component data from herds participating in the Mideast Federal Milk Marketing Order from 2000 through 2002, and its implications for herd profitability. A monthly simulation model was developed to evaluate the economic returns for a representative Holstein and Jersey herd in Pennsylvania under multiple component pricing. Component levels were highly seasonal and variable from farm to farm. A third of the herds during the course of a year realized a 1- to 3-mo temporary reduction in milk fat or protein greater than one standard deviation. Consistently producing milk fat and protein one standard deviation below the mean reduced the Class III value by $0.82/cwt (100 pounds), or 7.09%. The simulation model indicated that a herd of 100 Holstein cows generated $31,221 more income over feed costs (IOFC) a year than a herd of 100 Jersey cows. Although Jersey milk had greater gross value than Holstein milk due to higher component levels, total volume of milk and components produced by Holsteins offset this difference. Simulation results confirm that increasing milk fat and protein percentages by one standard deviation increased IOFC 7.7% for Holsteins and 9.2% for Jerseys relative to the baseline IOFC, with similar losses for component reductions. Increasing milk yield by one standard deviation increased IOFC by 19.6% for Holsteins and 23.9% for Jerseys relative to the baseline IOFC, again with similar losses for reductions in milk production. In all of the scenarios analyzed, the most important factor affecting IOFC was total amount of milk fat and protein produced, not the component percentage levels.

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“…Bailey and Tozer (2001) refer to the difference between the historical uniform price and the class III cash price as "basis." Therefore, ewmabasis t−i = λ × basis t−i + (1 − λ) × ewmabasis t−i−1 , where λ is the smoothing parameter.…”

Section: Prediction Methodsmentioning

confidence: 99%

“…The regulations in the FMMO are complicated and detailed and have been periodically adjusted since their inception in 1933 (Swantz, 1962). The current 10 FMMO have their origins with the 1996 Farm Bill, which resulted in a fundamental overhaul of the US milk pricing system (Bailey and Tozer, 2001).…”

Section: Introductionmentioning

confidence: 99%

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Prediction of Future Uniform Milk Prices in Florida Federal Milk Marketing Order 6 from Milk Futures Markets

Vries

Feleke

2008

Journal of Dairy Science

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This study assessed the accuracy of 3 methods that predict the uniform milk price in Federal Milk Marketing Order 6 (Florida). Predictions were made for 1 to 12 mo into the future. Data were from January 2003 to May 2007. The CURRENT method assumed that future uniform milk prices were equal to the last announced uniform milk price. The F+BASIS and F+UTIL methods were based on the milk futures markets because the futures prices reflect the market's expectation of the class III and class IV cash prices that are announced monthly by USDA. The F+BASIS method added an exponentially weighted moving average of the difference between the class III cash price and the historical uniform milk price (also known as basis) to the class III futures price. The F+UTIL method used the class III and class IV futures prices, the most recently announced butter price, and historical utilizations to predict the skim milk prices, butterfat prices, and utilizations in all 4 classes. Predictions of future utilizations were made with a Holt-Winters smoothing method. Federal Milk Marketing Order 6 had high class I utilization (85 ± 4.8%). Mean and standard deviation of the class III and class IV cash prices were $13.39 ± 2.40/cwt (1 cwt = 45.36 kg) and $12.06 ± 1.80/cwt, respectively. The actual uniform price in Tampa, Florida, was $16.62 ± 2.16/cwt. The basis was $3.23 ± 1.23/cwt. The F+BASIS and F+UTIL predictions were generally too low during the period considered because the class III cash prices were greater than the corresponding class III futures prices. For the 1-to 6-mo-ahead predictions, the root of the mean squared prediction errors from the F+BASIS method were $1.12, $1.20, $1.55, $1.91, $2.16, and $2.34/cwt, respectively. The root of the mean squared prediction errors ranged from $2.50 to $2.73/cwt for predictions up to 12 mo ahead. Results from the F+UTIL method were similar. The accuracies of the F+BASIS and F+UTIL methods for all 12 forecast horizons were not significantly different. Application of the modified Mariano-Diebold tests showed that no method included all the information contained in the other methods. In conclusion, both F+BASIS and F+UTIL methods tended to more accurately predict the future uniform milk prices than the CURRENT method, but prediction errors could be substantial even a few months into the future. The majority of the prediction error was caused by the inefficiency of the futures markets to predict the class III cash prices.

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An Evaluation of Federal Order Reform

Cited by 4 publications

References 2 publications

Negative producer price differentials in Federal Milk Marketing Orders: Explanations, implications, and policy options

Negative producer price differentials in Federal Milk Marketing Orders: Explanations, implications, and policy options

Economic Returns to Holstein and Jersey Herds Under Multiple Component Pricing

Prediction of Future Uniform Milk Prices in Florida Federal Milk Marketing Order 6 from Milk Futures Markets

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