Federal Milk Marketing Order (FMMO) August 2021 Class III and Class IV milk prices were announced Sept. 1. Both were again lower than the previous month, and the gap between the two almost disappeared.
Natzke dave
Dave Natzke
Editor / Progressive Dairy

That means producers will see lower prices for August milk and milk handler depooling incentives are almost all eliminated, reducing the chance of negative producer price differentials (PPDs).

FMMO administrators are scheduled to announce August uniform prices and PPDs between Sept. 9-14.

At $15.95 per hundredweight (cwt), the August 2021 Class III price is down 54 cents from July 2021 and $3.82 less than August 2020, when USDA food box purchases helped boost cheese prices. Through the first eight months of 2021, the Class III milk price averaged $16.78 per cwt, down 83 cents from the same period in 2020.

At $15.92 per cwt, the August 2021 Class IV price slipped lower for a second consecutive month, down 8 cents from July but still $3.39 above August 2020. The January-August 2021 Class IV average is $15.12 per cwt, up $1.50 from the same period a year earlier.

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Class III-IV milk prices moved lower due to declines in cheese and butter prices, which drove lower values of both protein and butterfat used in monthly milk price calculations.

At about $2.46 per pound, the value of milk protein in August FMMO milk price calculations fell about 3.75 cents from July, down $1.98 from August 2020 and is the lowest since May 2020.

The value of butterfat posted a 4.9-cent decline in August to about $1.85 per pound. That’s the lowest since March 2021 but sill about 22 cents more than August 2020.

The July Class III-Class IV price spread fell to just 3 cents per cwt. The last time the monthly Class IV price was higher than the Class III price was June 2019. The narrower spread in August 2021, combined with an August 2021 Class I base price ($16.90 per cwt) that was higher than the Class III price, reduced depooling incentives for Class III handlers.

Looking ahead, the spread between monthly Class III-Class IV milk futures prices looks to return to pre-COVID-19 levels seen in 2018 and 2019, when annual average spreads averaged 39 cents and 66 cents, respectively.

Markets change but based on futures contract settlement prices at the close of trading on the Chicago Mercantile Exchange (CME) on Sept. 1, the spread between Class III and Class IV prices will average 35 cents and 48 cents in the third and fourth quarters of 2021, respectively.

Longer term, the spread in Class III and Class IV prices could average just 42 cents per cwt for all of 2022, based on futures prices on Sept. 1.

That closer Class III-IV price relationship also improves Class I prices using the “average of plus 74 cents” Class I mover pricing formula compared to the previous “higher of” formula.

Read also: July DMC margin falls to $5.68 per cwt.  end mark