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The Effects of FMMOs Pricing Regimes on Milk Price Behavior and Dairy Farm Profitability

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  • Bolotova, Yuliya

Abstract

This research evaluates the effects of the key changes that took place in the design of Class III milk pricing within Federal Milk Marketing Orders (FMMOs) on milk price behavior and dairy farm profitability over three milk pricing regimes: Minnesota-Wisconsin price series (1960s – 1995), Basic Formula Price (1995-1999) and Multiple Component Pricing (2000-present). An autoregressive conditional heteroscedasticity (ARCH) model is estimated to evaluate the effects of changes in the dairy industry institutional environment on the Class III milk price level and volatility over the analyzed period of time. The empirical evidence presented in the paper 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.

Suggested Citation

  • Bolotova, Yuliya, 2015. "The Effects of FMMOs Pricing Regimes on Milk Price Behavior and Dairy Farm Profitability," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196779, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea15:196779
    DOI: 10.22004/ag.econ.196779
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    References listed on IDEAS

    as
    1. Manchester, Alden C. & Blayney, Donald P., 1997. "Structure of Dairy Markets: Past, Present, Future," Agricultural Economic Reports 33929, United States Department of Agriculture, Economic Research Service.
    2. Manchester, Alden C. & Blayney, Donald P., 2001. "Milk Pricing In The United States," Agricultural Information Bulletins 33612, United States Department of Agriculture, Economic Research Service.
    3. Mueller, Willard F. & Marion, Bruce W., 1997. "Practices Facilitating Manipulation of Prices on the National Cheese Exchange," Working Papers 204118, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
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    Keywords

    Agribusiness; Agricultural and Food Policy; Agricultural Finance; Demand and Price Analysis; Farm Management; Industrial Organization; Marketing;
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