CHILTON, Wis., April 8, 2026 — Dairy farmers are feeling the drain as a key change in federal milk pricing has erased nearly 20 years of gradual modest progress in their milk checks, virtually overnight.
American Dairy Coalition (ADC) is calling on USDA to bring transparency to the system, filing comments with the Agricultural Marketing Service by the March 30 deadline on the rulemaking notice for mandatory, audited manufacturing cost and yield surveys tied to make allowances used in Federal Milk Marketing Order (FMMO) pricing formulas.
These built-in processor credits—now totaling $3 to $5 per cwt—continue to cut into farmer milk checks.
The filing builds on ADC’s earlier request for additional time. Despite a short 30-day window and limited outreach, dairy farmers responded. Of 76 total comments, about 60 came from individual producers.
“Farmers showed up because this hits their milk checks directly,” says Laurie Fischer, ADC CEO. “Make allowances are not line-items farmers see when they review their milk check statements. They are embedded in the FMMO pricing formulas.”
Congress has now required mandatory, audited cost surveys under the One Big Beautiful Bill Act of 2025 to replace older voluntary surveys.
ADC analysis shows the first eight months of the FMMO update to make allowances raised processor gross margins significantly June 2025 through Jan. 2026 (Table 1):
• Total margins ranged from $3.22 to $5.04 per cwt at pool average test.
• The average Class III gross margin increased 26.7%, up $1.00 per cwt from $3.74 to $4.74 per cwt;
• The average Class IV gross margin gained 39.1%, up $0.93 per cwt from $2.39 to $3.32 per cwt;
Meanwhile, this change alone reduced producer minimum milk price revenue by 5% (Table 1), erasing the gradual modest gains in average farm milk prices since 2008 (Table 2).
As butterfat and protein have increased, the pounds of finished products per hundredweight also increased, allowing processor fixed costs to be spread over more pounds of products.
As longtime expert Calvin Covington has pointed out: “In 2025, it required almost 25 less tankers (50,000 lbs./tanker) of milk per day to produce one million pounds of 38% moisture cheddar cheese compared to 2000.”
“As component levels rise, they add value to milk but also increase the front-end negative impact of current make allowances, despite these efficiency gains,” says Sherry Bunting, ADC Dairy Market Analysis & Policy Advisor, who led the formal comment preparation using spreadsheet analysis developed with Covington.
“At the same time on the back-end of the milk check statement, we’re seeing additional line-item deductions and reduced premiums,” Bunting explains.
This is illustrated by ADC analysis that shows the gap between the monthly AMS Mailbox price vs. the NASS All-Milk price used in the Dairy Margin Coverage program has widened to an average of $1.00 per cwt—67% more negative than a year ago (Table 3).
Cost allocation will be a crucial part of the survey. The FMMO system sets minimum prices using weekly surveys of just four basic dairy products defined under federal mandatory dairy product price-reporting statutes. These include cheddar cheese (40-lb blocks, excluding cheese intended for aging and limited to specified packaging), butter (salted, 80% fat), nonfat dry milk, and dry whey.
Today’s dairy plants make many more products that are not included in the price reporting.
“As dairy plants change, and more of the value comes from products that are not part of the pricing formulas, we need to understand the value streams,” says Bunting. “Cheese can serve as a gateway to higher-value whey products, and farmers should not be on the hook for investments aimed at those higher-value products that are not price-reported. We need to make sure costs tied to those products are not shifted onto the basic products that are used to set milk prices.”
ADC also suggests that if cost data collection is expanded to include additional products, then price reporting must also be expanded.
“Dairy farmers are price-takers,” Fischer says. “They face rising costs too. This survey must serve as the audit farmers were promised to restore fairness and prevent cost-shifting from products that do not determine their milk prices.”
The filing referenced 2023 FMMO hearing testimony as processors testified that regulated prices were being “set too high” and must be viewed as “minimum prices.” That same principle should apply to make allowances—they should reflect minimum basic costs to convert milk into the basic price-reported commodities.
ADC’s full comment is now part of the public record, and the organization is committed to making sure dairy farmers have input as the process of developing the mandatory, audited cost survey moves forward.
See ADC’s full filing and attachments here
