Update highlights
- April FMMO milk class prices mixed
- March 2023 DMC payments top $126 million
- Fed raises interest rate another 0.25%
- ICYMI: Replacement and cull cow prices, mailbox milk prices
- GDT index increases again
- Ag producer sentiment improves modestly
April FMMO milk class prices mixed
Federal Milk Marketing Order (FMMO) Class III and IV milk prices diverged in April, with Class III moving above Class IV for the first time since May 2022.
April 2023 FMMO pooling estimates, uniform prices and producer price differentials are scheduled to be released next week. Check the Progressive Dairy website for analysis on May 15.
Three of four FMMO milk class prices declined from March. Class prices announced on May 3 were:
- At $19.20 per hundredweight (cwt), the April Class II milk price is down 32 cents from March and $6.51 less than April 2022.
- At $18.52 per cwt, the Class III milk price rose 42 cents from March but is $5.90 less than April 2022.
- At $17.85 per cwt, the April 2023 Class IV milk price declined 43 cents from March and is $7.36 less than April 2022. It’s the lowest Class IV price since October 2021.
- In addition to Class II-III-IV prices listed above, the April 2023 advanced Class I base price was previously announced at $18.85 per cwt, down 14 cents from March and $5.53 less than April 2022.
Potentially affecting FMMO pooling, the April 2023 Class III milk price is 57 cents more than the month’s Class IV milk price, which will bring Class IV milk to FMMO pools while providing a fairly small incentive for Class III depooling.
Contributing to the April milk class price calculations, the butterfat value declined while the value of protein was up.
The value of butterfat fell to about $2.70 per pound, down 3 cents from March and the lowest since December 2021. It’s the fourth consecutive month the value of butterfat dropped below $3 per pound.
The value of milk protein rose about 15 cents from March to about $2.56 per pound.
The value of nonfat solids fell 3.8 cents to about 98 cents per pound, while the value of other solids rose 1.4 cents to just under 25 cents per pound.
Based on current milk futures prices, Class III-IV milk prices will move in different directions in May and June.
As of the close of trading on May 2, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $16.65 per cwt for May, down almost $2 from April, and remained below $17 per cwt for June.
The Class IV milk futures price closed at $17.94 per cwt for May and rises to $18.36 per cwt for June.
If those prices hold, the May-June Class III-IV milk price gap will average about $1.35 per cwt, an incentive to depool Class IV milk.
Already announced, May 2023’s advanced Class I base price reversed course, increasing from the previous month for the first time since November. At $19.57 per cwt, it’s up 72 cents from April 2023 but $5.88 less than May 2022.
March 2023 DMC payments top $126 million
Dairy Margin Coverage (DMC) program indemnity payments on March 2023 milk marketings enrolled in the program will top $126 million, according to the latest update from the USDA’s Farm Service Agency (FSA). Indemnity payments for the first three months of 2023 total more than $305 million.
The March DMC margin was $6.08 per cwt, triggering Tier I indemnity payments at $6.50-$9.50 coverage levels and Tier II indemnity payments at $6.50-$8 DMC coverage levels.
Read: March 2023 DMC margin falls to $6.08 per cwt
Wisconsin led all states in January-March DMC indemnity payments at $68.08 million. That was followed by: California – $30.25 million, New York – $28.99 million, Minnesota – $26.17 million and Pennsylvania – $25.03 million.
January-March DMC payments averaged $18,106 per dairy operation enrolled in 2023. All payments are subject to a 5.7% sequestration deduction.
Based on latest enrollment data as of May 1, 16,868 dairy operations are enrolled in the 2023 DMC program, representing about 72.8% of operations with established production history. Annual milk volume covered under the program totals 156.6 billion pounds, about 78% of production history established in 2023. The report does not include enrollment in the Supplemental DMC program.
After starting the month mixed, dairy margins improved modestly over the second half of April as a sharp decline in projected feed costs more than offset weaker milk prices, according to Commodity & Ingredient Hedging LLC.
The April DMC margin and potential indemnity payments will be announced on May 31.
Fed raises interest rate another 0.25%
Meeting on May 2-3, the Federal Reserve Board raised interest rates by 0.25%, boosting the federal funds rate to 5.25%, the highest since August 2007. The increase was the 10th since last March. The next meeting of the Federal Open Market Committee is scheduled for June 13-14.
ICYMI: Replacement and cull cow prices, mailbox milk prices
In case you missed it, look for these price updates on the Progressive Dairy website:
- Weakening milk prices and tightening income margins kept the lid on U.S. average prices for dairy replacement cows again. Quarterly average prices have now averaged $1,720 over the past four quarters, about 19% below the last peak of $2,120 per head in October 2014.
- Meanwhile, cull cow prices continued to climb, averaging $95.70 per cwt in March and the highest since September 2015. The tight milk income margins were incentive to push monthly slaughter totals to its highest level since 1986, the year of the whole-herd buyout program.
- The gap between January 2023 average “mailbox” prices and the comparable “all-milk” prices widened to about 82 cents per cwt, up from 70 cents in December. January U.S. all-milk prices averaged $23.10 per cwt, down $1.60 per cwt from December 2022. The January 2023 mailbox prices for selected FMMOs averaged $22.28 per cwt, down $1.72 per cwt from the month before.
GDT index increases again
The latest Global Dairy Trade (GDT) price index rose 2.5% in an auction held May 2, the second consecutive sale to post an increase. Prices in individual product categories were mostly higher:
- Skim milk powder (SMP) was up 1.5% at $2,787 per metric ton (MT, or about 2,205 pounds).
- Whole milk powder was up 5% to $3,230 per MT.
- Anhydrous milkfat was down 2.4% to $4,832 per MT.
- Butter was up 2.4% to $4,947 per MT.
- Cheddar cheese was up 4.5% to $4,561 per MT.
The GDT platform offers dairy products from six global companies: Fonterra (New Zealand), Dairy America (U.S.), Amul (India), Arla (Denmark), Arla Foods Ingredients (Denmark) and Polish Dairy (Poland). U.S.-based Darigold Inc. and Valley Milk LLC will begin offering SMP at the auction in June.
The next GDT auction is May 16.
Ag producer sentiment improves modestly
Both short- and long-term economic outlooks of agricultural producers improved modestly in April, according to results of the monthly Purdue University/CME Group Ag Economy Barometer survey. Contributing to the brighter outlooks, more producers expect that Federal Reserve interest rates may finally be nearing their peak.
The Ag Economy Barometer provides a monthly snapshot of farmer sentiment regarding the state of the agricultural economy. The survey collects responses from 400 producers whose annual market value of production is equal to or exceeds $500,000. Minimum targets by enterprise are as follows: 53% corn/soybeans, 14% wheat, 3% cotton, 19% beef cattle, 5% dairy and 6% hogs. Latest survey results, released May 2, reflect ag producer outlooks as of April 10-14.
Clouding the picture, more than 70% of survey respondents continue to think it’s a bad time for large investments, citing price increases for machinery and construction and rising interest rates, said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture.
With 2023 Farm Bill discussions heating up, producers think that passage of a new farm bill this year is either very likely (12%) or at least somewhat likely (28%). On the other side of the coin, 29% of producers think that the 2023 Farm Bill’s passage is either very unlikely (13%) or somewhat unlikely (16%).
