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An Analysis of Milk Pricing in the United States Dairy Industry

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  • Yuliya V. Bolotova

Abstract

ABSTRACT The performance of the system of milk pricing within Federal Milk Marketing Orders (FMMOs) has recently attracted increased attention. A dramatic increase in the volatility of milk prices received by dairy farmers has adversely affected dairy farm profitability. Furthermore, the effects that the private Exchange spot cheese market has on FMMOs milk pricing have raised concerns, mostly due to an imperfectly competitive nature of competition process in this market. This research analyzes the behavior of Class III milk price, which is the mover of the overall FMMOs pricing structure, during three milk pricing regimes: Minnesota–Wisconsin price series (1960s–1995), Basic Formula Price (1995–1999), and Multiple Component Pricing (2000–present). The empirical evidence presented in the article indicates that changes in the level of Class III milk price were rather minor in magnitude. However, changes in the milk price volatility were dramatic. There is empirical evidence indicating that the private Exchange spot cheese price is the main determinant of the Class III milk price, which is consistent with the design of Class III milk pricing during the analyzed FMMOs milk pricing regimes. [JEL Classifications: L1; Q1; K2].

Suggested Citation

  • Yuliya V. Bolotova, 2017. "An Analysis of Milk Pricing in the United States Dairy Industry," Agribusiness, John Wiley & Sons, Ltd., vol. 33(2), pages 194-208, April.
    • Handle: RePEc:wly:agribz:v:33:y:2017:i:2:p:194-208
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    File URL: http://hdl.handle.net/10.1002/agr.21456
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    References listed on IDEAS

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    1. Willard Mueller & Bruce Marion, 2000. "Market Power in the Cheese Industry: Further Evidence," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(2), pages 177-191, September.
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    Cited by:

    1. Bolotova, Yuliya, 2020. "The Price Effects of Milk Supply Control in the U.S. Dairy Industry," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304209, Agricultural and Applied Economics Association.

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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • K2 - Law and Economics - - Regulation and Business Law

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