Here’s Progressive Dairy’s monthly review of the numbers to provide some additional transparency on your milk check.
Administrators of the 11 Federal Milk Marketing Orders (FMMOs) reported July 2022 uniform milk prices, producer price differentials (PPDs) and milk pooling data, Aug. 9-12. Uniform or blend prices moved lower than the month before for the first time since August 2021, while the wide spread between Class III-IV milk prices continued to affect pooling.
Uniform prices dip, PPDs increase
After setting record highs in most FMMOs in June, July 2022 uniform milk prices declined (Table 1). Largest declines were in FMMOs utilizing multiple component pricing, where a lower value for protein pressured Class III milk prices lower. Five FMMOs saw uniform prices decline more than $1 per hundredweight (cwt) from the month before, led by the Upper Midwest 30 and California 51.
July baseline producer price differentials (PPDs) were higher in applicable FMMOs (Table 1). The July PPD was up $1.19 in the Northeast FMMO 1, hitting $3.84 per cwt, but up just 11 cents in the Upper Midwest 30 at 41 cents. PPDs have zone differentials, so actual amounts will vary. Also, individual milk handlers apply PPDs and other deductions to milk checks differently.
Class prices for July
- Class I base price: $25.87 per cwt, unchanged from June
- Class I base with zone differentials: $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
- Class I mover formula: The 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.
- Class II milk price: $26.66 per cwt, up 1 cent from June
- Class III milk price: $22.52 per cwt, down $1.81 from June
- Class IV milk price: $25.79 per cwt, down 4 cents from June
- Class III-IV milk price spread: $3.27 per cwt, the widest since November 2020, when the Class III milk price was supported by pandemic food box cheese purchases – this wide spread creates incentives for the higher-priced milk class to be depooled.
Component values, tests
Affecting Class III-IV milk prices, the value of butterfat rose in July, but the value of protein declined again:
- Butterfat value: $3.36 per pound, up nearly 3 cents from June and likely the highest on record – it’s the sixth 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.
- Protein value: $2.9116 per pound, down 50.6 cents from June – the value of protein is now down nearly 96 cents per pound since May and the lowest since March.
- Solids value: The value of nonfat solids fell 1.5 cents, to $1.62 per pound. The value of other solids decreased about 7 cents, to 36 cents per pound.
Affecting statistical uniform prices at test, average butterfat, protein and nonfat solids tests in pooled milk were down slightly from June in a handful of FMMOs providing preliminary data.
Impact on pooling
With one more day of production, overall milk pooling on FMMOs in July was up about 200 million pounds from June at 12.3 billion pounds. The larger July Class III-IV price spread brought a little more Class III milk back in FMMO pools – but kept more Class IV milk out (Table 2).
- At about 1.06 billion pounds in July, Class IV pooling across all FMMOs was down about 20 million pounds from June and represented about 8.6% of the total milk pooled, the fifth month below 10% so far in 2022.
- In contrast, at 6.98 billion pounds in July, Class III pooling was up about 300 million pounds from June and represented about 56.7% of total milk pooled, the highest percentage of the year.
The USDA releases July milk production estimates on Aug. 22.
Looking ahead
The outlook for August prices is lower:
- Class I base price: $25.13 per cwt, down 74 cents from July
- Class I base with zone differentials: $27.95 per cwt across all FMMOs, ranging from a high of $30.53 per cwt in the Florida FMMO 6 to a low of $26.93 per cwt in the Upper Midwest FMMO 30
- Class I mover formula: The Class I mover average-of plus 74 cents formula reduces 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 $26.17 per cwt, $1.04 more than the actual price determined using the average-of plus 74 cents formula.
- Other class prices: August Class II, III and IV milk prices will be announced Aug. 31. As of the close of trading on Aug. 12, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $20.15 per cwt for August, down $2.37 from July; the Class IV milk futures price closed at $24.60 per cwt, down $1.19 from July.
- Class III-IV milk price spread: Based on those futures prices, the spread in Class III-IV milk prices will diverge even further in August to $4.45 per cwt. The gap in the Class III-IV spread will stay wide in September at $3.38, before shrinking to $1.29 in October. That extends Class IV depooling incentives well into fall.
WASDE outlook
The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report, released Aug. 12, revised the 2022-23 U.S. milk production estimates higher due to larger cow inventories and increases in milk output per cow. Projected average all-milk prices were lowered for both years.
