WASHINGTON — The U.S. Department of Agriculture announced Feb. 28 milk handlers can resume forward price contracts with farmers through the reauthorization of the Dairy Forward Pricing Program (DFPP).
The Agriculture Improvement Act of 2018 (2018 farm bill) had extended the original 2008 farm bill authorization, but new contracts had been prohibited after the program expired Sept. 30, 2018.
The the Dairy Forward Pricing Program allows milk handlers, under the Agricultural Marketing Agreement Act of 1937, to voluntarily enter into forward price contract with milk producers or cooperative associations of producers for a negotiated price for raw milk. It does not allow for forward contracting of fluid or Class I milk.
Handlers can enter into new contracts until Sept. 30, 2023. Any forward contract entered prior to the Sept. 30, 2023, deadline is subject to a Sept. 30, 2026, expiration date.
All other provisions of the Dairy Forward Price Program remain the same.
Sharon R. Uther, market administrator with the Agricultural Marketing Service’s Mideast Marketing Area, issued several reminders to producers and handlers in a letter dated Feb. 28, including:
- All new contracts must be signed by both parties prior to the effective month. The signed contract and disclosure statement must be received by the market administrator by the 15th of the applicable month.
- The disclosure statement must be signed on the same date as the contract.
- Producer milk that has been forward contracted under the program is not subject to minimum payment to a producer or cooperative association under a Federal Order.
Within F.O. 33, additional information is available from William Pollock, 330-225-4758, ext. 142, or by email, wpollock@fmmaclev.com.
Q: What is a dairy forward contract, and what are its purposes?
A: In general, a forward contract is an agreement between a milk buyer (handler) and a dairy farmer or a cooperative association of dairy farmers to sell a stated quantity of milk, for a stated period in the future, at a stated price. A forward contract is a type of risk management instrument that has potential benefits to both parties. Producers and handlers are able to lock in prices, thereby reducing risk associated with milk price volatility. One benefit is the enhanced ability of producers and handlers to obtain new or continued financing. A forward price contract is a tool that can be used alone or in conjunction with other pricing tools to manage risk.
Q: What is the Dairy Forward Pricing Program?
A: The Dairy Forward Pricing Program allows producers to voluntarily enter into forward price contracts with handlers for pooled milk used for Class II, III, or IV purposes under the Federal Milk Marketing Orders. The program allows handlers regulated under the Federal milk marketing order program to pay producers in accordance with the terms of a forward contract and not have to pay the minimum Federal order blend price for pooled milk.
Q: Can a producer enter into a forward contract with more than one handler? A: Yes.
Q: Can a producer enter into more than one forward contract with a handler that covers milk delivered in the same month?
A: Yes. For example, a producer delivering 100,000 pounds of milk in a month could have 50 thousand pounds priced under one forward contract, 30 thousand pounds priced under another forward contract, and 20 thousand pounds not included in a forward contract.
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