Handler Training Module 4: Pool Pricing. Educational materials prepared by USDA AMS Staff

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2 Handler Training Module 4: Pool Pricing Educational materials prepared by USDA AMS Staff

3 Module 4 Page 3 Handler Training: Pool Pricing Content: Class Prices Allocation Process Statistical Uniform Price Calculation Producer Price Differential Discussion Sample Handler Obligation

4 Module 4 Page 4 Class Prices There are 4 Classes in the FO system: Class I Fluid Milk Class II Ice cream, yogurt, etc. Class III Cheese Class IV Butter and powder

5 Module 4 Page 5 Class Prices There are two sets of announcements: Class I Price and Advanced Pricing Factors Final Class and Component Prices

6 Module 4 Page 6 Advanced: On or before the 23 rd

7 Module 4 Page 7 Advanced: Base Skim & Butterfat

8 Module 4 Page 8 Advanced: Class I Differential The Class I Differential is a constant rate added to the base skim and base butterfat The rate varies by county Rates for all counties are available in The FO 51 Class I Price Announcement will use the rate for Los Angeles County, CA of $2.10

9 Module 4 Page 9 Advanced: Class I Differential

10 Module 4 Page 10 Advanced: Class II Skim & NFS

11 Module 4 Page 11 Advanced: Two-Week Survey

12 Module 4 Page 12 Advanced Price: Summary Class I Price and Advanced Pricing Factors On or before the 23 rd of each month Base Skim and Base Butterfat same across US Class I Differentials apply on a county basis Class II Skim and Nonfat Solids Announced Based on two weeks of AMS surveys Does not include a fluid carrier

13 Final: On or before the 5 th Module 4 Page 13

14 Final: Class II, III and IV Module 4 Page 14

15 Final: Components Module 4 Page 15

16 Final: One Month Survey Module 4 Page 16

17 Module 4 Page 17 Final Price: Summary Final Class and Component Prices On or before the 5 th of each month. Every month. Class II, III and IV are the same across FO s Component Prices are the same across all FO s Based on four (or five) weeks of AMS surveys

18 Module 4 Page 18 Bridging Class and Uniform Prices

19 Module 4 Page 19 Allocation Process: Overview The allocation process determines the classification of Producer Milk by subtracting the handler s receipts from the handler s gross utilization All Federal Orders share the same process, and the steps are provided in detail in

20 Module 4 Page 20 Allocation Process: Sample Market

21 Module 4 Page 21 Allocation Process: Utilization

22 Allocation Process: Receipts Module 4 Page 22

23 Module 4 Page 23 Allocation Process: Producer Milk

24 Module 4 Page 24 Allocation Process: Producer Milk

25 Module 4 Page 25 Statistical Uniform Price (UP) Calculation

26 UP: Producer Milk by Class Module 4 Page 26

27 UP: Pool Value Module 4 Page 27

28 UP: Producer Milk Credits Module 4 Page 28

29 Module 4 Page 29 UP: Producer Milk Value - Credits

30 Module 4 Page 30 UP: Producer Settlement Fund

31 Module 4 Page 31 UP: Producer Price Differential

32 UP: All Sections Together Module 4 Page 32

33 Module 4 Page 33 Pool Pricing: PPD Discussion Producer Price Differential: = $0.00/cwt, if value of pool is equal to Class III value = Positive value, if value of pool is greater than Class III value = Negative value, if value of pool is lower than Class III value

34 Module 4 Page 34 Positive PPD Pool Revenue Class I Handler Value Class II Handler Value Class III Handler Value Class III Component Values Butterfat Value Protein Value Other Solids Value Class IV Handler Value PRODUCER PRICE DIFFERENTIAL (PPD)

35 Module 4 Page 35 Negative PPD Pool Revenue Class I Handler Value Class II Handler Value Class III Handler Value Class III Component Values Butterfat Value Protein Value Other Solids Value Class IV Handler Value PRODUCER PRICE DIFFERENTIAL (PPD)

36 Module 4 Page 36 Positive PPD Pool Revenue (Class I prices determined before the month) Class III Component Values (determined after the month) Payment Breakdown +PPD When the value of the pool is greater than your Class III component value payments, the PPD is positive

37 Module 4 Page 37 Negative PPD Pool Revenue (Class I prices determined before the month) Class III Component Values (determined after the month) Payment Breakdown -PPD When the value of the pool is less than your Class III component value payments, the PPD is negative. This is an indication that Class III values have increased throughout the month.

38 Module 4 Page 38 Producer Price Differential Important to remember: Class I prices announced before the month Class III prices announced after the month Producers paid at Class III component values When component values increase in the market during the month: Class III component values (which all producers are paid) could be higher than Class I prices paid into the pool Can result in a negative PPD

39 Module 4 Page 39 FO vs CA Perspective: FO Class I Federal Order Class I Milk: Priced on Skim and Butterfat. California Class 1 Milk: Priced on Butterfat, Solids- Not-Fat, and Fluid Carrier (water).

40 Module 4 Page 40 FO vs CA Perspective: FO Class II Federal Order Class II Milk: Priced on Butterfat and Solids-Not-Fat. California Class 2, 3, 4a, and 4b Milk: Priced on Butterfat and Solids-Not-Fat.

41 Module 4 Page 41 FO vs CA Perspective: FO Class III Federal Order Class III Milk: Priced on Butterfat, Protein and Other Solids. California Class 2, 3, 4a, and 4b Milk: Priced on Butterfat and Solids-Not-Fat.

42 Module 4 Page 42 FO vs CA Perspective: FO Class IV Federal Order Class IV Milk: Priced on Butterfat and Solids-Not-Fat. California Class 2, 3, 4a, and 4b Milk: Priced on Butterfat and Solids-Not-Fat.

43 Module 4 Page 43 Pool Pricing: Handler Obligation Cover Sheet Computation of Producer Price Differential Shrinkage Report of Receipts and Utilization - Comp Handler List Handler Obligation Allocation Other Source Receipts

44 Module 4 Page 44 Sample Distributing Plant Obligation

45 Module 4 Page 45 Sample Manufacturing Plant Obligation

46 Module 4 Page 46 Handler Obligation: Funds Producer Settlement Fund ( ) o The pool bill o The amount owed to/from the pool Administrative Fund ( ) o Flat rate, applicable to total pounds (per cwt) o Rate specified by MA, no more than $0.08 Marketing Services Fund ( ) o Flat rate, applicable to non-member milk (per cwt) o Rate specified by MA, no more than $0.07 Marketing service is also available to coop members if the coop is not performing these services

47 Module 4 Page 47 Pool Pricing: Putting it all together Four classes of milk Advanced and Final Class Price Announcements Allocation process classifies producer milk Producer Milk Value Credits to Handler PPD Obligation