Federal Milk Marketing Order (FMMO) Class III and Class IV milk prices both improved in April, but the spread between the two class prices also widened. The April 2021 Class III milk price is $17.67 per hundredweight (cwt), up $1.52 from March 2021 and $4.60 more than April 2020, when the onset of COVID-19 pandemic began to impact milk prices. The April 2021 Class IV milk price is $15.42 per cwt, up $1.24 from March 2021 and $4.02 more than April 2020.
As a result, the April Class III-Class IV price spread increased about 28 cents from March to $2.25 per cwt. In addition, the inverted spread between the advanced April 2021 Class I base price ($15.51 per cwt) and the Class III price also grew wider at -$2.16 per cwt.
What impact those factors have on depooling and any potential negative producer price differentials (PPDs) will be released in April FMMO administrator uniform price and utilization reports beginning May 11. Check back with Progressive Dairy to find a monthly summary of FMMO uniform prices and PPDs.
Based on current milk futures prices, the Class III-Class IV price spread isn’t anticipated to close any time soon. As of the close of trading on the Chicago Mercantile Exchange (CME), May 5, the monthly Class III-Class IV price spread increases to $2.95 per cwt in May, remains above $2.55 through July and finally narrows below $2 per cwt in October. If realized, the Class III-Class IV price gap would average $2.13 for the year.
The spread also factors into FMMO Class I milk price calculations, which has used the “average of” instead of the “higher of” Class III-Class IV milk prices since May 2019.
Class III-IV prices recovering
At about $2.81 per pound, the value of milk protein in April FMMO milk price calculations rose about 12 cents from March. The value of butterfat posted a 23-cent gain to about $1.95 per pound, the highest since July 2020.
The April 2021 Class III price is the highest since November 2020. Through the first four months of 2021, the Class III price has averaged $16.40 per cwt, $1.13 per cwt higher than the same period a year ago.
April’s Class IV price is the highest since pre-coronavirus February 2020. Through the first four months of 2021, the Class IV average is $14.14 per cwt, down 64 cents from a year ago.
Based on announced Class III-IV milk prices and futures prices at the close of CME trading on May 5, the 2021 Class III would average $18.40 per cwt, up from $18.16 per cwt in 2020. The 2021 Class IV price would average $16.27 per cwt, up from $13.49 per cwt last year.
