An Overview of Factors Determining How Milk is Priced at the Farm

Abstract

The price farmers receive for raw (unprocessed, unpasteurized) milk is largely determined by supply and demand forces that are influenced by federal and state dairy programs. Prior to January 2000, class prices under Federal Orders (FOs) were calculated from competitive pay prices for Grade B milk in Minnesota and Wisconsin. Currently, product price formulas are in place which set the price for milk components under FOs. Milk utilization patterns in the Federal Order market area, in which farm milk is sold, dictates the type of pricing system used to determine the price received for raw milk. The state of Arizona belongs to the Arizona-Las Vegas marketing area. This marketing area encompasses all of the state of Arizona and Clark County, Nevada. This particular Federal order (131, and three others, 5, 6, & 7) use the skim milk/butterfat pricing system. The price to producers is the average of class prices weighted by market wide utilization. Uniform prices are announced at 3.5% butterfat at the base zone, which is Phoenix, for Federal Order marker 131.