Here’s Progressive Dairy’s monthly review of the numbers to provide some additional transparency on your milk check.
Most class, uniform prices higher
June 2022 FMMO uniform milk prices surpassed previous record highs in most marketing areas. The June Class III-IV price spread rose to $1.50 per hundredweight (cwt), a three-month high, fueling Class IV depooling (more on that, below).
The strong uniform prices were supported by higher prices for three of four FMMO milk classes in June:
- At $25.87 per cwt, the June Class I base price was up 42 cents from May 2022 and $7.58 more than June 2021. Adding zone differentials for each order's principle pricing point, June 2022 Class I prices averaged $28.69 per cwt, ranging from a high of $31.27 per cwt in the Florida FMMO 6 to a low of $27.67 per cwt in the Upper Midwest FMMO 30. Based on Progressive Dairy estimates, the June Class I mover calculated under the “average-of plus 74 cents” formula was 60 cents per cwt more than the average calculated using the “higher-of” formula.
- At $26.65 per cwt, the Class II milk price was up 78 cents from May and $9.99 more than June 2021.
- At $24.33 per cwt, the June 2022 Class III milk price dropped 88 cents from May’s record high of $25.12 per cwt but remained $7.12 more than June 2021. Through the first six months of 2022, the Class III milk price averaged $22.95 per cwt, 27 cents more than the January-June average in 2014.
- At $25.83 per cwt, the June 2022 Class IV milk price increased 84 cents from May and was $9.48 more than June 2021. The January-June 2022 average stands at $24.67 per cwt, $1.59 more than six-month average of $23.09 per cwt in 2014.
Component values, tests
Contributing to the higher Class IV milk price, the value of butterfat jumped to about $3.33 per pound in June, up almost 23 cents from May and likely the highest on record. It’s the fifth straight month the butterfat value topped $3 per pound. Prior to 2022, the value of butterfat surpassed $3 per pound only three times in the past nine years, reaching $3.25 per pound in September 2014, $3.18 per pound in November 2015 and $3.01 per pound in August 2017.
The value of milk protein dipped more than 45 cents from May to about $3.42 per pound. Despite the decline, the protein price is no slouch; the June value was above $3.40 per pound for a third straight month.
The value of nonfat solids rose 0.6 cent to $1.63 per pound. The value of other solids decreased about 0.6 cent to 43 cents per pound.
Average butterfat, protein and nonfat solids tests in pooled milk were down slightly from May in a handful of FMMOs providing preliminary data.
Uniform prices set new records
June blend or uniform prices at standardized test continued to set new records (Table 1) in most FMMOs. The lone exception was in the Upper Midwest, where the uniform price was down 71 cents per cwt from May. The high uniform price for June was $30.60 per cwt in the Florida FMMO 6; the low was $24.63 per cwt in the Upper Midwest FMMO 30.
With butterfat, protein and SCC premiums, the uniform prices “at test” will be at least $2 per cwt higher than statistical uniform prices in most FMMOs utilizing multiple component pricing.
June baseline PPDs were higher in applicable FMMOs, although changes from May diverged widely (Table 1). The June PPD was up 17 cents in the Upper Midwest but more than $1 higher than May in Northeast, Central, Mideast, California, Pacific Northwest and Southwest FMMOs. PPDs have zone differentials, so actual amounts will vary. Also, individual milk handlers apply PPDs and other deductions to milk checks differently.
Impact on pooling
Overall milk pooling in June was down about 500 million pounds from May at 12.1 billion pounds. The larger June Class III-IV price spread brought more Class III milk back in FMMO pools – but kept a lot of Class IV milk out.
You can get a general picture of FMMO pooling-depooling in a couple of ways: on a volume basis, comparing monthly pooling totals to previous months; and on a percentage basis, comparing the percent utilization of a specific class of milk relative to all milk pooled that month.
- At about 1.08 billion pounds in June, Class IV pooling across all FMMOs was down about 2.1 billion pounds from May and represented about 8.9% of the total milk pooled, the fourth month below 10% so far in 2022 (Table 2). Compared to May among individual orders, June pooled volumes of Class IV milk fell by 924 million pounds in the California FMMO 51 and 659 million pounds in the Southwest FMMO 126. Elsewhere, May Class IV pooling was up a combined 416 million pounds in the Upper Midwest, Central and Mideast FMMOs.
- In contrast, at 4.68 billion pounds in June, Class III pooling was up about 2.1 billion pounds from May and represented about 52.7% of total milk pooled, both the third-highest totals of the year. Compared to May, Class III pooling was up 830 million pounds in California, 547 million pounds in the Upper Midwest and 518 million pounds in the Southwest.
Looking at June data, about 12.67 billion pounds of milk were pooled on all federal orders, up about 26 million pounds from May (there was one less day of milk production in June). The USDA releases June milk production estimates on July 21.
The outlook for July prices remains strong, although there will likely be a slight downturn.
- Already announced, the July 2022 advanced Class I base price is unchanged from June at a record-high $25.87 per cwt, $8.45 more than June 2021. With zone differentials, July 2022 Class I prices will again average $28.69 per cwt across all FMMOs, ranging from a high of $31.27 per cwt in the Florida FMMO 6 to a low of $27.67 per cwt in the Upper Midwest FMMO 30.
Even though the Class I base and individual FMMO Class I prices were unchanged in July, the newer Class I mover average-of plus 74 cents formula slightly reduced Class I prices paid to producers compared to the previous higher-of formula. Based on Progressive Dairy calculations, the Class I mover calculated under the higher- of formula would have resulted in a Class I base price of $25.94 per cwt, 8 cents more than the price determined using the average-of plus 74 cents formula.
- July Class II, III and IV milk prices won’t be announced until Aug. 3. At the close of Chicago Mercantile Exchange (CME) trading on July 13, the July Class III futures price was $22.72 per cwt, down $1.61 from June. The July Class IV futures price settled at $25.76 per cwt, down 7 cents per cwt from June.
If current prices hold, July-September Class III-IV price spreads would average $3.15 per cwt, providing large incentives for Class IV depooling.
Longer term, as of July 13, Class III futures prices averaged $21.37 per cwt for the second half of 2022, with Class IV futures averaging $23.62 per cwt. The monthly Class III-IV price spread ranges between $1.10 and $3.85 per cwt, extending the Class IV depooling incentive well into 2023.
The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report, released July 12, revised the 2022-23 U.S. milk production estimates lower due to slower growth in milk per cow than previously expected. With the outlook for production lowered, projected farm-level milk prices were raised for 2023. However, since that outlook there has been recent weakness in futures prices.
FMMO, policy discussions
There are also a lot of ideas emerging regarding potential reforms to FMMO and other dairy policies, through either a formal FMMO hearing process or the 2023 Farm Bill. Find recent Progressive Dairy coverage here:
- Progressive Dairy
- Email Dave Natzke