What would happen if Federal Milk Marketing Orders' minimum price provisions were eliminated? Would it increase returns to dairy farmers? And even if it did, would it wreak too much havoc in the industry to be worth trying?

Ted, T3 and Anna dive into what might be The Milk Check's most controversial conversation yet.

Anna: Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market analysis and insights with dairy farmers in mind. The topic of Federal Order Reform is never far from our minds. Whether it's a conversation on The Milk Check or a chat around the office, we talk about it all the time.

Today, we’re addressing it head-on. And we assume the industry will have strong opinions about this. Email us your thoughts at [email protected], or submit a question to www.jacoby.com/askted.

Do minimum price provisions still make sense? What would happen if we got rid of them? Would conditions on dairy farms change for the better? Or is Federal Order reform of this sort not worth the chaos it would likely cause?

Ted: What's the objective of Federal Order Reform? From the dairy farmer standpoint and from the industry standpoint, from my perspective, the objective is to increase the price to the dairyman. The objective...

T3: We're not talking about what the objective was 90 years ago when it was started.

Ted: Well, be it...

T3: But what it would be to change what we have now into something else.

Ted: Ninety years ago, it was started to monitor the veracity involved in weights and tests in butterfat and protein—well, we didn't even have protein. We had butterfat and skim. And the perception in the '20s and early '30s was that everybody was cheating the dairy farmer on butterfat tests. And so they requested a Federal Order that monitored the tests. Eight or ten years later, it morphed into a price mechanism. And over the years, we've had classified pricing. So now we have basically two regulatory systems. And you have the Capper-Volstead Act, which allows dairymen to band together, similar to a labor union and bargain collectively. And then you have a regulatory system, which allows cooperatives to pay less than the mandated price, or the minimum price under the Federal Order into a pool plant. You have two regulatory issues involved here. You have collective bargaining, and the second issue is the classified pricing system, which prices fluid milk at one price, and yogurt and cottage cheese, and whips and dips at another, ice cream. And then you have the cheese at one price and you have butter / powder at another price. In order to participate in the classified pricing system, you have to participate in the regulatory system.

T3: But there's not a rule that says you have to.

Ted: You can go unregulated if you want, unless you're a bottling plant. If you distribute milk, quote-unquote, in the marketing area, in the defined marketing area, by law, you are going to be a pool plant. There are certain percentages involved that by law, you have no choice, you're gonna be a pool plant. And anyone who sells milk into that pool plant is gonna be qualified. And it's against the law to sell milk into that pool plant at less than the minimum price under the order.

T3: And the pool plant would basically be a plant that's bottling milk that is sold as fluid milk at a store, gallon of milk, or a quart of milk, or whatever.

Ted: No, that's the distributing plant.

T3: Okay.

Ted: A pool plant can be anything, it can be a silo down at the end of the string of silos, it can be a whole plant, it can be anything that you wanna make it. It depends on how you pipe it and how it's approved by the regulatory system. The distributing plant is a bottling plant that distributes milk in the marketing area.