The Federal Milk Marketing Order (FMMO) advanced Class I base price hit another eight-year high in March, but the change in the Class I mover formula implemented in 2019 reduced what might have been an even higher price paid to producers.
Natzke dave
Editor / Progressive Dairy

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.

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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.  end mark

Dave Natzke