FMMO uniform milk prices for November milk marketings were announced the week of Dec. 7 (Table 1). The uniform (or “blend” prices) were up in 10 of 11 FMMOs; only the California FMMO posted a small decline, down 9 cents per hundredweight (cwt). Elsewhere, price increases compared to October ranged from about 60 cents per cwt in Central, Pacific Northwest and Southwest FMMOs to $1.80-$2 higher in Southeast, Appalachian and Florida FMMOs.
PPD implications
The factors driving negative PPDs were similar to those seen nearly every month since June. Enhanced by cheese prices driven higher by seasonal demand and to fill USDA food boxes, the value of protein in FMMO price calculations rose to $5.62 per pound, the third time it’s topped $5 in 2020. The value of butterfat slipped to $1.56 per pound, down more than 8 cents from October and the lowest since May.
Looking at FMMO milk class prices, the November Class I base price was $18.04 per cwt; the Class III milk price was $23.34 per cwt, up $1.73 from October and $2.89 more than November 2019; the Class IV price was $13.30 per cwt, down 17 cents from October and $3.30 less than November 2019.
Those class prices created another substantial Class I base-Class III price inversion at $5.30 per cwt. The gap between Class III and Class IV prices widened even more in November to $10.04 per cwt, second only to the gap of $10.78 per cwt in July. Those relationships were again ample incentive for Class III depooling, pulling the value of large volumes of high-value Class III milk from FMMO pools.
A look at the pools
Since the amount of milk depooled is not reported, Table 2 shows Class III utilization in each order in attempt to capture depooling trends.
For example, Class III utilization averaged 84% of all milk pooled in 2019 in the Upper Midwest FMMO. That dropped to about 80% during January-May 2020, prior to the impact of the USDA’s cheese purchases under the Farmers to Families Food Box Program. Once those purchases kicked in, cash cheddar cheese prices skyrocketed, pushing Class III milk prices higher.
With incentives to depool, Class III utilization in the Upper Midwest order fell to about 47% between June-October and to just 37% in November.
Prior to COVID-19’s impact on FMMO price formulas, Class III utilization as percentage of all milk pooled on FMMOs averaged about 33%. That fell to about 13% in November.
Another way to estimate the extent of depooling is to monitor milk volume that was pooled. Pre-COVID-19, Class III milk pooled in all 11 FMMOs averaged about 4.34 billion pounds per month during January-May. With depooling in June-October, the volume of Class III milk pooled across all 11 FMMOs averaged just 1.47 billion pounds per month. In November, Class III pooled in all 11 FMMOS was estimated even lower at 1.26 billion pounds.
Negative PPDs go deeper
Compared to September, October’s negative PPDs had surged between $4-$6 in the seven FMMOs using multiple component pricing (Table 1). PPDs fell further in November, down about 50 cents in the Northeast and Mideast FMMOs to more than $1.80 in the California FMMO.
As we’ve noted previously, PPDs have zone differentials, so they’ll vary slightly within each FMMO; some California areas will see negative PPDs of -$10 per cwt.
How negative PPDs impact individual milk checks depends on your milk handler. Some cheese co-ops pay their producer members at or near the full Class III value, plus any applicable premiums. Other handlers have deducted all or portions of negative PPDs from the prices paid to their producers.
‘Negative’ environment subsiding
The environment for negative PPDs should now subside, absent any federal policies that create dramatic milk price swings.
The Class I base price for December 2020 was previously announced at $19.87 per cwt. FMMO Class III and IV prices won’t be announced until early January, but as of Dec. 11, Chicago Mercantile Exchange (CME) Class III milk futures prices settled at $15.79 per cwt, with the Class IV futures price closing at $13.48 per cwt.
That puts the December 2020 Class I base price above the Class III price and narrows the gap between Class III and Class IV prices, eliminating the large depooling incentives.
Read also: More Negative PPDs and De-Pooling Reignite Federal Milk Marketing Order Debate, by John Newton, chief economist with the American Farm Bureau Federation. 
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Dave Natzke
- Editor
- Progressive Dairy
- Email Dave Natzke
