Update Highlights
  • February Class III-IV milk prices higher
  • PMVAP payments wrapping up
  • U.S. dairy export outlook improves but imports up too
  • Dairy cull cow slaughter slowed in January
  • November 2021 mailbox, all-milk price spread tightened

February Class III-IV milk prices higher

The Federal Milk Marketing Order (FMMO) Class IV milk price soared to a record high $24 per hundredweight (cwt) in February. It’s up 91 cents from January and $10.81 higher than February 2021.

Natzke dave
Editor / Progressive Dairy

The January 2022 Class III milk price rose 53 cents from January to $20.91 per cwt, the highest since November 2020, when government purchases of cheese for food boxes pushed prices up. The Class III price is up $5.16 from February 2021.

February Class III-IV milk prices again moved higher due to increases in values of butterfat and milk solids used in monthly milk price calculations, but the value of protein was down slightly.

The value of butterfat rose about 6.5 cents from January to $3.02 per pound. The value of milk protein slipped about 4 cents from January to about $2.32 per pound. The value of nonfat solids rose about 4 cents to $1.55 per pound, while the value of other solids increased about 7 cents to 59.8 cents per pound.

February’s Class III-IV price relationship created a wide $3.09-per-cwt spread, providing incentives for Class IV depooling. Additionally, the Class IV price is close to the February FMMO average Class I milk price of $24.46 per cwt, which includes zone differentials.

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FMMO administrators are scheduled to announce February uniform prices, producer price differentials and pooling volumes by March 14.

PMVAP payments wrapping up

The wait for Pandemic Market Volatility Assistance Program (PMVAP) payments should be ending.

Last August, the USDA announced details of the PMVAP, designed to reimburse dairy producers with up to $350 million for unanticipated financial losses created during the COVID-19 pandemic, when the change to the Class I mover price formula and federal food box purchases weighted heavily toward cheese combined to create significant losses for some producers.

The USDA payments are made to participating dairy cooperatives and milk handlers, which then had 30 days to distribute the money to producer milk suppliers. Under the original timeline, payments were scheduled to be distributed in December.

Throughout the fall and winter, handlers have been working with the USDA to gather and submit data needed to calculate and distribute PMVAP monies to eligible dairy farmers.

In January, Dana Coale, deputy administrator of USDA’s Agricultural Marketing Service Dairy Program, said payments were expected to be distributed by the end of February. She said the process was slowed by complexities of the program, as well as producer payment eligibility due to milk production caps and federal farm program payment limitations.

Read: Weekly Digest: PMVAP payments being released.

As of early March, about 60% of the agreements were processed and paid in January and February, said Jenny Lester Moffitt, USDA undersecretary for marketing and regulatory programs. The remainder was scheduled to be paid in March.

Under the PMVAP, payments will reimburse qualified dairy farmers on an annual production of up to five million pounds of milk for 80% of revenue losses for fluid milk sales from July 2020 through December 2020. The payment rate will vary by region based on the actual losses on pooled milk related to price volatility.

U.S. dairy export outlook improves but imports up too

The forecast for fiscal year (FY) 2022 U.S. dairy exports brightened further in the latest USDA quarterly Outlook for U.S. Agricultural Trade report, released in late February. The forecast value of U.S. dairy imports also jumped substantially.

FY 2022 (Oct. 1, 2021-Sept. 30, 2022) dairy exports were forecast at $7.8 billion, a new record high, based on rising unit values offsetting lower volumes.

The value of FY 2021 dairy exports topped $7.31 billion, continuing a three-year growth trend, up from $6.46 billion in FY 2020 and about $5.6 billion in both FY 2018 and 2019.

The forecast for FY 2022 dairy imports increased $700 million from last November’s report to $4 billion due to higher expected unit values and volumes of cheese, butter and milk proteins. Cheese imports were forecast at $1.6 billion.

FY 2021 U.S. dairy imports were estimated at $3.72 billion, with cheese imports valued at $1.43 billion in FY 2021.

Dairy cull cow slaughter slowed in January

U.S. dairy cull cow slaughter slowed somewhat to start 2022, based on the USDA’s monthly Livestock Slaughter report. Factoring in the decline, there were about 82,000 fewer cows in the U.S. dairy herd compared to the year before.

At 260,800 head, January dairy cow slaughter in federally inspected plants was down about 7,000 from December 2021 and 16,500 less than January 2021. Both January 2022 and January 2021 had 21 non-holiday weekdays and five Saturdays.

The USDA’s Milk Production report previously estimated there were 9.368 million cows in U.S. herds in January 2022, down from 9.45 million during the same month a year earlier.

Heaviest dairy culling during January 2022 occurred in the Southwest (Arizona, California, Hawaii and Nevada), where 65,900 dairy cows were marketed for beef. That was followed by the Upper Midwest (Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin) at 58,900 head.

Other regional totals were estimated at 43,400 head in Delaware, Maryland, Pennsylvania, West Virginia and Virginia; 30,000 head in Arkansas, Louisiana, New Mexico, Oklahoma and Texas; and about 30,500 head in Alaska, Idaho, Oregon and Washington.

November 2021 mailbox, all-milk price spread tightened

Two monthly average milk prices announced by the USDA both improved for November 2021 milk marketings. And with FMMOs reporting positive producer price differentials (PPDs) that month, the spread between the average “all-milk” and “mailbox” prices shrunk.

Based on Progressive Dairy calculations, November 2021 mailbox prices were 81 cents per cwt less than the all-milk prices for comparable states and regions. That was the smallest difference since May 2020, when the COVID-19 pandemic disrupted milk markets and FMMO class pricing.

The all-milk price is the estimated gross milk price received by dairy producers and includes quality, quantity and other premiums but does not include marketing costs and other deductions.

The mailbox price is the estimated net price received by producers for milk, including all payments received for milk sold, and deducting costs associated with marketing.

The price announcements reflect similar – but not exactly the same – geographic areas. The USDA National Ag Statistics Service (NASS) reports monthly average all-milk prices for the 24 major dairy states. The mailbox prices are reported by the USDA’s Agricultural Marketing Service (AMS) and covers selected FMMO marketing areas. The AMS announcement of mailbox prices generally lag all-milk prices by a couple of months.

The November 2021 Class III-IV spread, with Class IV milk price moving above the Class III price, provided incentives for Class IV depooling in November.

Through the first 11 months of 2021, the USDA’s mailbox prices averaged about $1.05 per cwt less than average all-milk prices for the same months. During that period, all-milk prices averaged $18.41 per cwt, while mailbox prices averaged $17.36 per cwt.

The difference in the two announced prices can affect dairy risk management, since indemnity payments under the Dairy Margin Coverage (DMC), Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) programs are all based on the all-milk price, before any marketing cost deductions.  end mark

Dave Natzke