Dairy producers are adjusting to a new milk pricing system that went into effect at the beginning of the year.

The monthly basic formula price (BFP) is gone, notes Neil Broadwater, Winona County educator with the University of Minnesota Extension Service.

"Instead of finding out the previous month's BFP on the first Friday of each month, we now have a series of price announcements each month," notes Broadwater. "It will take some time with the new system, in my opinion, for individual producers to see how the prices announced each month relate to what they actually receive in their milk check."

Broadwater says butter, cheese and powdered milk prices still will be the major forces determining milk prices for Minnesota and Wisconsin dairy producers.

"With the new system, farm prices will be tied more closely to changes in dairy commodity prices," says Broadwater. "Farm milk checks will more quickly reflect what is happening with dairy commodities. There is supposed to be less lag time in price changes between producers, processors, retailers and consumers."

Dairy forecasters expect the difference in what dairy producers receive under the new system, compared with the old BFP system, to be less than 10 cents per hundredweight per year, according to Broadwater.

Announcements each month will be based on commodity prices for skim milk, butterfat, protein, other solids and nonfat solids. Therefore, it will be necessary to pay attention to prices for all four classes of dairy products. Class I includes bottled milk, cultured buttermilk and eggnog. Class II includes ice cream, packaged cream and cultured milk products, such as sour cream, dips and cottage cheese. Cheese and cream cheese come under class III. Class IV includes butter and nonfat dry milk.

Class I as well as Class II skim milk prices must be announced by the 23rd of each month, says Broadwater. Class II butterfat price, Class III and IV prices and component prices will be announced by the fifth day of each month.

"By the time we get used to the new system, U.S. Department of Agriculture will have conducted hearings during year 2000 to reconsider the Class III and Class IV milk prices," says Broadwater. "Any changes in the pricing formulas for these two classes will be implemented by Jan. 1, 2001."

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