On November 1, 2018 California will evolution to the Federal Milk Marketing Order (FMMO) system In adopting the Federal Order system California will leave their unique rules and methods and conform to the rules used in most of the USA.
Every California dairy processor needs to make many important changes to their milk procurement and accounting systems.
What are some of the key changes that your dairy processing plant will need to navigate during the changeover from the California system to the FMMO?
- Product costing. Each of the dairy products you process will need an updated bill of materials. Dairy product costs in an FMMO sre quite different from the current California system. The cost accounting templates that worked in the California milk pricing system will be of no use after November 1st. This will also impact ll of your customer contracts that include a milk cost calculation
- Producer payments. The FMMO has pays dairy farmers and cooperatives with a different calculation than the current California payment model. In addition to paying for the three FMMO milk components – butterfat, protein, and other solids – the FMMO also pays dairy producers the Producer Price Differential (PPD). The PPD represents the difference between the value of all the milk in the FMMO pool at the class prices and the component prices
- New definitions and terminology. “fully regulated pool distributing plat”, “partially regulated” “regulated pool supply plant”
- Unlike the California system that essentially includes all Grade A milk, participating in the FMMO is only mandatory for Class I (fluid milk) processors. All other dairy processors must evaluate the economics of FMMO participation
- Different rules for valuing milk shrinkage
- And many other changes, including the timing of milk price announcements
Herbein + Company’s team of FMMO experts can assist you with these and many other details affecting your milk procurement and accounting. As a leading CPA firm to the national dairy processing industry, we provide workshops, webinars, and individual training to your employees.