FMMO payment settlement dates vary by order, with most payments from milk buyers due to FMMO administrators between July 13-17. From there, FMMO administrators pay milk handlers/suppliers (co-ops and others), which then pay milk producers, generally within a day.
What dairy farmers might see in their milk checks is uncertain. Most should see a jump in prices compared to May. However, they won’t see the full impact of the $8.90 per hundredweight (cwt) jump in the Class III milk price between May and June. (Read: Negative PPDs, depooling likely to create milk check fireworks.)
Based on FMMO uniform prices alone, producers in the Upper Midwest FMMO should see the largest jump in milk prices. The statistical uniform price, calculated on standard fat, protein and other solids, rose from $12.31 per cwt in May to $17.23 per cwt in June (see Table 1). Increases in uniform prices were $3.20, $3.12 and $2.19 per cwt in the Pacific Northwest, Arizona and Northeast FMMOs, respectively. Elsewhere, the increase was much smaller and is even lower in the Southeast and Florida FMMOs, those with very high Class I fluid milk utilization.
Factoring into the uniform or blend prices are the PPDs, which have garnered a great deal of attention in recent weeks.
Nearly all the volatility in milk prices and the resulting negative PPDs can be attributed to the value of protein, driven by cheese prices that have moved from about $1 per pound in mid-April to $3 per pound on July 13, surging well past the previous record high of $2.45 per pound.
That’s created disorder in a usually orderly marketing system. In June, the Class III price of $21.04 per cwt is $7.82 above the Class I base price of $13.22 per cwt; $8.05 above Class II price of $12.99 per cwt; and $8.14 above the Class IV price of $12.90 per cwt.
As an illustration, components are similar in value with the Class III price, with PPDs representing the value of everything else. With the value of protein gobbling up the total dollars in the FMMO pool, everything else has to be divided up into what’s left, in this situation a negative number.
PPDs vary widely among the seven FMMOs that use multiple component pricing, ranging from -$3.81 per hundredweight (cwt) in the Upper Midwest to -$7.91 per cwt in California (see Table 1). Base PPDs are -$7 or more in California, Southwest, Central and Mideast orders.
The range is actually wider than that, because PPDs have a location adjustment factor, similar to Class I price differentials. In the California FMMO, for example, the June PPD ranges between -$7.91 to -$8.41 per cwt, a spread of 50 cents. In the Northeast FMMO, there a spread of $1.15 per cwt, ranging between -$5.38 and -$6.53 per cwt.
Negative PPDs are not taking money away but rather reflecting higher valued Class III milk compared to other uses in the market. FMMOs provide for an average blend price to producers that reflects all the classified values in the market place. Therefore, no individual producer is “penalized” if the plant they ship to has lower valued product mix.
Without the average blend price enforced by FMMOs, producers shipping to butter and powder plants would be seeing milk prices that are $7-$8 per cwt less than the producer shipping milk to a cheese plant.
Utilization and depooling
Factoring into the wide range of PPDs between FMMOs are class utilization and depooling. The high value of Class III milk has been an incentive for Class III handlers to keep that milk out of the pool.
In addition to looking at milk volume by class within a FMMO, one “at a glance” view of depooling is illustrated in milk class utilization. Compared to all of 2019 and through the first five months of 2020, June Class III utilization was down in 10 of 11 FMMOs (see Table 2). For some FMMOs, the levels of higher-priced Class III milk pooled were extremely low.
The Upper Midwest FMMO, where more than 80% of milk goes into cheese, Class III utilization dropped to about 50%. That doesn’t mean a sharp decline in cheese production, but rather that Class III handlers kept milk out of the FMMO pool to avoid sharing the high-valued milk with the rest of the pool.
Those that depooled can return to the pool next month, with some restrictions. Each FMMO has separate provisions limiting the amount of milk that can be pooled based on the previous month.
Milk handlers who depooled may keep the money, but it is available to them to pay their patrons a competitive price for milk at or above the statistical blend price. There may be a larger price spread due to the unknowns out there and uncertainty ahead.
The PPD for July is expected to be negative as well, and again won’t reflect the full value of Class III milk and cheese prices. However, with Class III prices factored in the Class I base price, the July Class I price will jump $5 per cwt, and August could move higher.
Editor's note: I'm interested in seeing how negative PPDs, depooling and other factors impacted your milk check. If you're willing to share information, send it to my email address below. Thanks. 
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Dave Natzke
- Editor
- Progressive Dairy
- Email Dave Natzke
