Announced by the USDA's Agricultural Marketing Service on Feb. 16, the March I base price is $22.88 per hundredweight (cwt), up $1.24 from February 2022 and $7.68 more than March 2021. It’s also the highest since November 2014.
At $3.12 per cwt, the difference between the advanced Class III skim milk pricing factor ($10.59 per cwt) and the advanced Class IV skim milk pricing factor ($13.71 per cwt) grew substantially. That means producers will see a negative impact using the “average-of plus 74 cents” Class I mover compared to the old “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 $23.67 per cwt, 79 cents more than the price determined using the average-of plus 74 cents formula. That difference is up from 51 cents per cwt in February.
A Class I differential for each order's principal pricing point is added to the base price to determine the Class I prices paid in individual FMMOs. Then, the Class I price is multiplied by the utilization rate in each order to calculate a blend or uniform milk price paid to producers.
The difference in the higher-of and average-of calculations will have the biggest impact in high-utilization Florida, Southeast and Appalachian FMMOs. The change has become a hot-button topic in calls for FMMO reform.
While not a precise comparison of advanced Class III and Class IV skim milk pricing factors, the spread between Class III and Class IV milk futures prices remains more than $2 per cwt through July, based on the close of trading on the Chicago Mercantile Exchange on Feb. 16.
- Progressive Dairy
- Email Dave Natzke