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

Marin Bozic, Christopher A. Wolf

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


In Federal Milk Marketing Orders (FMMO), which use multiple component pricing schemas, farmers are paid for delivered quantity of butterfat, protein, and other solids, plus a producer price differential (PPD). The PPD captures the difference between the total handler obligations to the pool and the total component value of milk. In 2020, record negative PPD caused widespread frustration among dairy farmers. The primary objective of this research was to provide a comprehensive analysis of factors that affect PPD and to quantify their relative importance. We examined FMMO data from the past 10 yr including prices, utilizations, and tests. By decomposing the PPD, we were able to isolate the drivers of negative values. We found that long-term trends in usage, most importantly declining beverage milk and rising component tests, including both butterfat and protein, have substantially reduced PPD over the past decade. Class I milk pricing reform of 2018 exacerbated negative PPD in 2020, but we found that the PPD would have been negative even without that reform. The greatest contributor to recent negative PPD was the spread between cheese and milk powder prices, caused by shifts in demand due to the COVID-19 pandemic and USDA intervention cheese purchases. A range of policy modifications proposed to address negative PPD was evaluated.

Original languageEnglish (US)
Pages (from-to)424-440
Number of pages17
JournalJournal of Dairy Science
Issue number1
StatePublished - Jan 2022

Bibliographical note

Funding Information:
This study received no external funding. The authors thank 2 anonymous reviewers and the editor for their assistance. The authors have not stated any conflicts of interest.

Publisher Copyright:
© 2022 American Dairy Science Association


  • dairy policy
  • federal milk marketing orders
  • milk price
  • producer price differential

PubMed: MeSH publication types

  • Journal Article


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