While the goal of improving risk management was achieved, American Farm Bureau Federation Chief Economist John Newton says the change cost dairy farmers millions of dollars.
“It got rid of what was the higher-of, in the pricing formula, and replaced it with a simple average of the Class III and IV milk prices. And because of COVID-19 price volatility that milk price is a lot lower than what it would have been otherwise, to the effect of around $400 million in lost revenue for dairy farmers.”
He adds it was something that was to provide new risk management tools for the beverage milk industry to allow them to use futures contracts for milk to hedge their beverage milk price risks, but unfortunately because of COVID-19 price volatility, it revealed some of the unintended consequences on farmer income.
