Milk Marketing Board Reduces Over-Order Premium

6/22/2013 7:00 AM

HARRISBURG, Pa. — Concerned that a combination of factors has begun to adversely affect in-state sales by in-state processors, the Pennsylvania Milk Marketing Board has adjusted the over-order premium for the remainder of 2013 to be more closely in line with premiums in nearby markets.

From July 2013 through December 2013 the over-order premium on Class I milk produced, processed and sold in Pennsylvania will be at least $1.85 per hundredweight, consisting of a base over-order premium of $1.60 per hundredweight and a variable fuel adjuster of at least $0.25 per hundredweight. The Pennsylvania-mandated premium will remain higher than the premium paid on all classes of milk in nearby markets.

Most of the adjustment was accomplished through a reset of the fuel adjuster. The over-order premium fuel adjuster has been in place since July 2004 and since then has adjusted the over-order premium based on diesel fuel costs and market conditions at that time. The board concluded that the fuel adjuster order no longer properly accounted for current diesel fuel costs and market conditions. The board issued a new fuel adjuster order to bring the fuel adjuster up to date.

The testimonies presented at the hearing agreed milk prices would be relatively strong during the second half of 2013. The board concluded that the base over-order premium should be reduced $0.25 per hundredweight as part of the overall adjustment to the total premium level.

Recognizing the impact of the decision, Board Chairman Luke Brubaker took a long-term view. “Based on all of the evidence we had available at the hearing,” Brubaker remarked, “I believe that we set the over-order premium at a level consistent with, but still higher than, surrounding markets and that will have a greater positive impact on Pennsylvania’s dairy industry in the future.”

Brubaker observed that the adjustment to the over-order premium would also reduce retail milk prices, noting that “since Pennsylvania’s retail prices directly follow the farm price, any reduction in the over-order premium will result in a direct reduction in Pennsylvania retail prices.”

In its order, the board also emphasized that the mandated premiums are only one factor it will consider and reiterated its intention to examine all facets of Pennsylvania milk pricing. However, the board concluded the mandated over-order premium should be adjusted to better reflect premiums in nearby markets and to recognize that it should not bear so much of the burden for other classes of milk.

Source: Pennsylvania Milk Marketing Board

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