Administrators of the 11 Federal Milk Marketing Orders (FMMOs) reported September 2022 uniform milk prices, producer price differentials (PPDs) and milk pooling data, Oct. 11-14. In a repeat from last month, uniform or blend prices moved lower, while the wide spread between Class III-IV milk prices continued to affect pooling. 

Natzke dave
Dave Natzke
Editor / Progressive Dairy

Read also: Potential FMMO hearing not likely to directly address depooling, PPDs.

Uniform prices, PPDs

After setting record highs in most FMMOs in June, September 2022 uniform milk prices stayed on a downward trend (Table 1). Largest declines in September were in FMMOs with high Class I utilization, as lower Class I prices and the “average-of plus 74 cents” Class I mover formula came into play. September uniform prices were down $1.16 per hundredweight (cwt) in Florida 6, $1 in Southeast 7 and 96 cents in Appalachian 5.

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High uniform price for the month was in Florida 6 at $28.58 per cwt, with the low in the California 51 at $21.80 per cwt.

September baseline producer price differentials (PPDs) were positive but slightly lower in all applicable FMMOs (Table 1), ranging from a high of $5 per cwt in the Northeast 1 to a low of 46 cents in the Upper Midwest 30. Most FMMOs saw declines in the 30-41 cent range, with the Upper Midwest down just 4 cents. PPDs have zone differentials, so actual amounts will vary within each FMMO.

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Also, individual milk handlers apply PPDs and other deductions to milk checks differently. Progressive Dairy has heard of numerous co-ops implementing “market adjustment” deductions on milk checks this fall to cover rising processing, transportation and labor costs.

Read: All-milk, mailbox price spreads could be widening.

Class prices for September

All four FMMO milk class prices were lower in September:

  • Class I base price: $23.62 per cwt, down $1.51 from August and a six-month low
  • Class I base with zone differentials: $26.44 per cwt across all FMMOs, ranging from a high of $29.02 per cwt in the Florida FMMO 6 to a low of $25.42 per cwt in the Upper Midwest FMMO 30
  • Class I mover formula: Based on Progressive Dairy calculations, the Class I mover calculated under the “higher-of” formula would have resulted in a Class I base price of $25.31 per cwt, $1.69 more than the actual price determined using the average-of plus 74 cents formula. The economic impact on uniform milk prices within individual FMMOs depends on Class I milk utilization in each FMMO.
  • Class II milk price: $26.51 per cwt, down 40 cents from August
  • Class III milk price: $19.82 per cwt, down 28 cents and the lowest since December 2021
  • Class IV milk price: $24.63 per cwt, down 18 cents and the lowest since February
  • Class III-IV milk price spread: At $4.81 per cwt, it was the widest since November 2020 and creates incentives for the higher-priced milk class to be depooled.

Component values, tests

Affecting Class III-IV milk prices, the value of butterfat rose in September, but the value of protein declined again:

  • Butterfat value: $3.56 per pound, up 16 cents from August – it’s the eighth straight month the butterfat value topped $3 per pound.
  • Protein value: $1.88 per pound, down about 26 cents from August – the value of protein is now down about 50% since May and the lowest since March 2019.
  • Solids: The value of nonfat solids fell about 9 cents to $1.40 per pound. The value of other solids decreased about 1.5 cents to 30 cents per pound.

Affecting statistical uniform prices “at test,” average butterfat and protein tests in pooled milk were up slightly from August as cooler temperatures help restore component levels in FMMOs providing preliminary data.

Impact on pooling

Overall milk pooling on all FMMOs in September was down about 278 million pounds from August at 12.4 billion pounds. The USDA releases September milk production estimates on Oct. 19.

September Class I pooling was down 3 million pounds from August, representing about 27.5% of total milk pooled. Class II pooling was down nearly 77 million pounds, representing 9% of the total pooled. Class III pooling was down 255 million pounds, but still represented almost 57% of the total pool (Table 2).

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At about 864 million pounds in September, Class IV pooling across all FMMOs actually increased slightly, up about 30 million pounds from August, but still represented just 7% of the total milk pooled (Table 2). It was the seventh month so far in 2022 that Class IV pooling was below 10% of total milk pooled.

Much of September’s Class IV pooling increase can be attributed to the Southwest FMMO 126, up about 37 million pounds from September, with smaller volume increases in Central 32, Mideast 33 and California 51 offset by declines in Northeast 1, Appalachian 5, Southeast 7 and Upper Midwest 30.

Looking ahead

October uniform prices and pooling totals will be announced around Nov. 11-14. The outlook for October prices is mixed:

  • Class I base price: Already announced, it’s $22.71 per cwt, down 91 cents from September but still $5.63 above October 2021.
  • Class I base with zone differentials: $25.53 per cwt across all FMMOs, ranging from a high of $28.11 per cwt in the Florida 6 to a low of $24.51 per cwt in the Upper Midwest 30
  • Class I mover formula: Analyzing the Class I mover, the spread in the monthly advanced Class III skim milk pricing factor ($7.04 per cwt) and advanced Class IV skim milk pricing factor ($12.67 per cwt) is $5.63 per cwt, the widest since July 2020. Based on Progressive Dairy calculations, the Class I mover calculated under the higher-of formula would have resulted in a Class I base price of $24.71 per cwt, $2 more than the actual price determined using the average-of plus 74 cents formula.
  • Other class prices: October Class II, III and IV milk prices will be announced on Nov. 2. As of the close of trading on Oct. 14, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $21.77 per cwt for October, up $1.95 from September; the Class IV milk futures price closed at $24.77 per cwt, up 14 cents from September.
  • Class III-IV milk price spread: Based on those futures prices, the October spread in Class III-IV milk prices will shrink to $3 per cwt, still providing incentives for Class IV depooling. The November spread in Class III-IV milk futures prices holds at $3 per cwt before closing to $2 in December.

WASDE outlook

The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report, released Oct. 12, 2022, raised 2022-23 U.S. milk production estimates from last month’s forecast but also strengthened milk price projections slightly. 

Affecting production and milk marketings, estimated milk cow numbers were raised, reflecting a more rapid pace of expansion in late 2022 and the first half of 2023. Output per cow was raised for the remainder of 2022 and into the first part of 2023

Adding information from the USDA’s Crop Production report on the feed side of the equation, the outlooks for corn and soybean meal prices were mixed, while hay and cottonseed production estimates were reduced.

Read: USDA boosts milk production forecast but raises price projections too.