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Atlanta Market Administrators Office Left Click to Move to Next Slide Milk Marketing 101 A Crash Course in Federal Milk Marketing Orders.

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Presentation on theme: "Atlanta Market Administrators Office Left Click to Move to Next Slide Milk Marketing 101 A Crash Course in Federal Milk Marketing Orders."— Presentation transcript:

1 Atlanta Market Administrators Office Left Click to Move to Next Slide Milk Marketing 101 A Crash Course in Federal Milk Marketing Orders

2 Atlanta Market Administrators Office Left Click to Move to Next Slide MARKET STRUCTURE Number of firms in the industry Relationship among firms in the industry The structure of the industry determines the conduct and performance of the individual profit maximizing firm.

3 Atlanta Market Administrators Office Left Click to Move to Next Slide Spectrum of Markets Structures PERFECT COMPETITION Large number of small producers Homogeneous product No limits on entry/exit Perfect knowledge Resources are mobile MONOPOLY One seller of given product in given market No close substitutes Entry to market is blocked Government regulation Patent/copyright

4 Atlanta Market Administrators Office Left Click to Move to Next Slide AGRICULTURAL MARKETING ORDERS Requested by vote of producers (farmers) Written by the Secretary of Agriculture Imposed on handlers (processors or packers) of highly perishable commodities--fruits, vegetables, and milk. Impose uniform marketing practices among all handlers. Orders prevent handlers from having excessive market power over the grower of perishables. Consumer ends up paying a higher price than would be the case without orders.

5 Atlanta Market Administrators Office Left Click to Move to Next Slide MILK MARKETING ORDERS Ensure Adequate Supplies of Fluid Milk to Consumers Establish Orderly Marketing of Producer Milk Achieve Price Stability Establish Uniform Pay Prices for Producer Milk Boundaries Based on Competition for Fluid Milk Sales

6 Atlanta Market Administrators Office Left Click to Move to Next Slide

7 Atlanta Market Administrators Office Left Click to Move to Next Slide Classes of Milk Products Class I – Fluid Products Class II – Ice Cream & Other Soft Products Class III – Cheese Class IV – Butter/Powder

8 Atlanta Market Administrators Office Left Click to Move to Next Slide Different Prices for Different Classes Class IV- NASS Survey of Butter/Powder Prices Class III - NASS Survey of Cheese Prices Class II - Class IV Price +.70 Class I – Higher of Class III or IV + Location Adj.

9 Atlanta Market Administrators Office Left Click to Move to Next Slide NASS SurveyClass Prices Class I Price Class II Price Class III Price Class IV Price

10 Atlanta Market Administrators Office Left Click to Move to Next Slide A Simple Fluid Milk Market 10,000 cwt. X $18/cwt. = $180,000 Class I Price = $18/cwt. 10,000 cwt. X $14/cwt. = $140,000 Class III Price = $14/cwt.

11 A Simple Pool 10,000 cwt. X $18/cwt. = $180,000 Class I Price = $18/cwt. 10,000 cwt. X $14/cwt. = $140,000 Class III Price = $14/cwt. 50% Class I 50% Class III ___________ $320,000 /20,000 cwt. =$16/cwt. Uniform Price

12 Pooling in a Deficit Market 10,000 cwt. X $18/cwt. = $180,000 Class I Price = $18/cwt. 10,000 cwt. X $14/cwt. = $140,000 Class III Price = $14/cwt. 60% Class I 40% Class III 5,000 cwt. X $18/cwt. = $ 90,000 _______________ $410,000 /25,000 cwt. =$16.40/cwt.

13 Absorbing Milk From a Surplus Market 10,000 cwt. X $18/cwt. = $180,000 Class I Price = $18/cwt. 10,000 cwt. X $14/cwt. = $140,000 Class III Price = $14/cwt. 40% Class I 60% Class III 5,000 cwt. X $14/cwt. = $ 70,000 _______________ $390,000 /25,000 cwt. =$15.60/cwt.

14 Atlanta Market Administrators Office Left Click to Move to Next Slide The Seasonality Problem Milk Consumption Milk Production

15 Diversions: Paying for Flexibility 10,000 cwt. X $18/cwt. = $180,000 Class I Price = $18/cwt. 10,000 cwt. X $14/cwt. = $140,000 Class III Price = $14/cwt. 50% Class I 33% Class III 5,000 cwt. X $18/cwt. = $ 90,000 _______________ $470,000 /30,000 cwt.=$15.67/cwt. 5,000 cwt. X $12/cwt. = $ 60,000 IV 17% Class IV

16 Skim and Butterfat Fluid Plant Receipts Butter Plant Receipts 97% Skim 3% Fat 97% Skim 3% Fat Fluid Plant ProductButter Plant Product 98% Skim 2% Fat 80% Fat 20% Skim

17 Atlanta Market Administrators Office Left Click to Move to Next Slide Pricing at 3.5% Uniform Skim CalculationUniform Butterfat Calculation Class Price Volume Value I ,000,000 $20,550,000 II ,000 $5,662,500 III ,000,000 $5,700,000 IV ,700,000 $11,679,000 6,450,000cwt $43,591,500 43,591,500/6,450,000 = $6.76/cwt I ,000,000 9,120,000 II ,000,000 5,500,000 III ,000,000 4,360,000 IV ,000,000 2,180,000 19,000,000lbs $21,160,000 21,160,000/19,000,000 = $1.12/lb (6.76 x.965) + (1.12 x 3.5) = 3.5% Butterfat

18 Pool Settlement Class I PlantClass III Plant Farmer Pays: Skim $6.80 Fat $1.30 Pays: Skim $6.00 Fat $1.00 Receives: Skim $6.40 Fat $1.15 $6.40 $ $6.40 $1.15

19 Atlanta Market Administrators Office Left Click to Move to Next Slide Market Price Signals and Feedback Supply Demand Price Quantity Supply Demand Price Quantity Wholesale LevelFarm Level P1 Q1 Increased Supply P2 Q2 P1 Q1 P2 Q2


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