Administrators of the 11 Federal Milk Marketing Orders (FMMOs) reported November 2022 prices and pooling data, Dec. 11-14. Uniform or blend prices were mixed, producer price differentials (PPDs) were slightly higher, the Class I mover formula has less impact on Class I prices, and the spread between Class III-IV milk prices continued to affect pooling.
Uniform prices, PPDs
Compared with October, November 2022 uniform milk prices were mixed (Table 1), moving higher in FMMOs with high Class I utilization but lower elsewhere. Largest declines in November were in the Pacific Northwest 124 and Upper Midwest 30, while Appalachian 5, Florida 6 and Southeast 7 FMMOs posted gains of 37-57 cents.
The highest uniform price for the month was in Florida 6 at $28.27 per cwt, with the low in the Upper Midwest 30 at $21.30 per cwt.
November baseline PPDs were again positive and up slightly in all applicable FMMOs (Table 1), ranging from a high of $3.26 per hundredweight (cwt) in the Northeast 1 to a low of 29 cents in the Upper Midwest 30. PPDs have zone differentials, so actual amounts will vary within each FMMO.
Also, individual milk handlers apply premiums and deductions to milk checks differently. Numerous processors are implementing “market adjustment” deductions on milk checks this fall to cover rising processing, transportation and labor costs.
Class prices for November
FMMO milk class prices were mixed in November:
- Class I base price: $24.09 per cwt, up $1.38 from October and $6.11 above November 2021
- Class I base with zone differentials: $26.91 per cwt across all FMMOs, ranging from a high of $29.49 per cwt in the Florida FMMO 6 to a low of $25.89 per cwt in the Upper Midwest FMMO 30
- Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($9.17 per cwt) and advanced Class IV skim milk pricing factor ($12.61 per cwt) was $3.44 per cwt, the narrowest since July 2022. 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 $25.04 per cwt, 95 cents 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: $24.67 per cwt, down $1.06 from October
- Class III milk price: $21.01 per cwt, down 80 cents
- Class IV milk price: $23.30 per cwt, down $1.66
- Class III-IV milk price spread: The November Class IV price was $2.29 more than the month’s Class III milk price, down from $3.15 in October and $4.81 in September, and the narrowest spread since June. The narrower spread did not have much impact on pooling.
Component values, tests
Contributing to the decline in November Class III-IV prices, the lower value of butterfat was only partially offset by an increase in the value of protein:
- Butterfat value: $3.37 per pound, down more than 28 cents from October’s record high and the lowest since July – it was still the 10th straight month the butterfat value topped $3 per pound.
- Protein value: $2.54 per pound, up 8.6 cents from October and the highest since July
- Solids: The value of nonfat solids fell 8 cents to about $1.32 per pound, while the value of other solids dipped slightly to 28.4 cents per pound.
Affecting statistical uniform prices “at test,” average butterfat and protein tests in pooled milk were up slightly from October in FMMOs providing preliminary data. With its high average butterfat (4.59%) and protein (3.59%) tests, producers in the Pacific Northwest 124 had the potential to see the at-test price at $27.58 per cwt, more than $5 above the statistically uniform price for the order.
Impact on pooling
Overall milk pooling on all FMMOs in November was down about 133 million pounds from October at 12.82 billion pounds. The USDA releases November milk production estimates on Dec. 19.
November Class I pooling was up 44 million pounds from October, representing about 27.2% of total milk pooled. Class II pooling was down 37.5 million pounds, representing about 8.4% of the total pooled. Class III pooling was down 96.3 million pounds from October at 7.35 billion pounds, representing about 57.3% of the total pool (Table 2).
At about 910 million pounds in November, Class IV pooling across all FMMOs increased, up almost 38 million pounds from October, but still represented about 7% of the total milk pooled (Table 2). It was the ninth month so far in 2022 that Class IV pooling was below 10% of total milk pooled.
Looking ahead
December 2022 uniform prices and pooling totals will be announced around Jan. 11-14, 2023. The outlook for December prices is lower:
- Class I base price: Already announced, it’s $22.58 per cwt, down $1.51 from November but still $3.41 above December 2021.
- Class I base with zone differentials: $25.40 per cwt across all FMMOs, ranging from a high of $27.98 per cwt in the Florida FMMO 6 to a low of $24.38 per cwt in the Upper Midwest FMMO 30
- Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($9.63 per cwt) and advanced Class IV skim milk pricing factor ($11.78 per cwt) is $2.15 per cwt, the narrowest since July 2022. 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 $22.90 per cwt, 32 cents more than the actual price determined using the average-of plus 74 cents formula.
- Other class prices: December Class II, III and IV milk prices will be announced on Jan. 5, 2023. As of the close of trading on Dec. 14, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $20.53 per cwt for December, down 48 cents from November; the Class IV milk futures price closed at $21.84 per cwt, down $1.46 from November.
- Class III-IV milk price spread: Based on those futures prices, the December spread in Class III-IV milk prices will tighten almost $1, to about $1.31 per cwt. Heading into January and beyond, that spread and depooling incentives will continue to shrink
WASDE outlook
The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report, released Dec. 9, left the 2022 U.S. milk production estimate unchanged from last month’s forecast but boosted the 2023 production forecast slightly, with both higher expected cow numbers and slightly more rapid growth in output per cow. All-milk price projections were raised for both years.
