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Administrators of the 11 Federal Milk Marketing Orders (FMMOs) reported December 2022 prices and pooling data during the week of Jan. 9-13. Uniform or blend prices were lower, producer price differentials (PPDs) declined, 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. 

Natzke dave
Dave Natzke
Editor / Progressive Dairy

Uniform prices, PPDs lower

Compared with November, December 2022 uniform milk prices were all lower (Table 1). Five FMMOs (Northeast 1, Appalachian 5, Florida 6 and Southeast 7 and Arizona 131) saw uniform prices down by $1.13 per hundredweight (cwt) or more on December milk marketings.

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The highest uniform price for the month was in Florida 6 at $27.05 per cwt, with the low in the Upper Midwest 30 at $20.73 per cwt.

December baseline producer price differentials (PPDs) were again positive but down slightly in all applicable FMMOs (Table 1), ranging from a high of $2.56 per cwt in the Northeast 1 to a low of 23 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.

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Class prices for December

Compared to a month earlier, all FMMO milk class prices were lower in December:

  • Class I base price: $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) was $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. The economic impact on uniform milk prices within individual FMMOs depends on Class I milk utilization in each FMMO.
  • Class II milk price: $23.11 per cwt, down $1.56 from November
  • Class III milk price: $20.50 per cwt, down 51 cents
  • Class IV milk price: $22.112 per cwt, down $1.18
  • Class III-IV milk price spread: The December Class IV price was $1.62 more than the month’s Class III milk price and the narrowest spread since June.

Component values, tests

Leading to the decline in December Class III and IV milk prices, a drop in the value of butterfat again offset a gain in the value of protein:

  • Butterfat value: About $3.15 per pound, down 22 cents from November and the lowest since May – it was still the 11th straight month the butterfat value topped $3 per pound.
  • Protein value: Just under $2.66 per pound, up almost 12 cents from November and the highest since July
  • Solids: The value of nonfat solids fell about a nickel to about $1.27 per pound, while the value of other solids dipped slightly to 26.5 cents per pound.

Affecting statistical uniform prices “at test,” average butterfat and protein tests in pooled milk were steady to up slightly from November 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 $26.50 per cwt, more than $5 above the statistically uniform price. 

Impact on pooling

Overall milk pooling on all FMMOs in December was up about 538 million pounds from November at 13.36 billion pounds. The USDA releases December milk production estimates on Jan. 25.

December Class I pooling was up 72 million pounds from November, representing about 26.6% of total milk pooled. Class II pooling was down 17 million pounds, representing about 7.9% of the total pooled.

Class III pooling was up 332.1 million pounds from November at 7.69 billion pounds, representing about 57.5% of the total pool (Table 2).

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At about 1.06 billion pounds in December, Class IV pooling across all FMMOs increased slightly, up almost 151 million pounds from November, but still represented about 7.9% of the total milk pooled (Table 2). It was the 10th month in 2022 that Class IV pooling was below 10% of total milk pooled.

Looking ahead

January 2023 uniform prices and pooling totals will be announced around Feb. 11-14. The outlook for January prices remains on the decline:

  • Class I base price: Already announced, it’s $22.41 per cwt, down 17 cents from December and an 11-month low, but still $2.70 above January 2022.
  • Class I base with zone differentials: $25.23 per cwt across all FMMOs, ranging from a high of $27.81 per cwt in the Florida FMMO 6 to a low of $24.21 per cwt in the Upper Midwest FMMO 30
  • Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($9.54 per cwt) and advanced Class IV skim milk pricing factor ($11.62 per cwt) is $2.08 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 $22.70 per cwt, 29 cents more than the actual price determined using the average-of plus 74 cents formula.
  • Other class prices: January Class II, III and IV milk prices will be announced on Feb. 2. As of the close of trading on Jan. 12, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $19.52 per cwt for January, down 98 cents from December; the Class IV milk futures price closed at $19.78 per cwt, down $2.34 from December.
  • Class III-IV milk price spread: Based on those futures prices, the January spread in Class III-IV milk prices will tighten to just 26 cents per cwt. Beyond the first quarter of 2023, the price spread and depooling incentives should all but disappear.

WASDE outlook

The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report, released Jan. 12, reduced both 2022 and 2023 U.S. milk production forecasts from last month.

For 2022, product and milk class price estimates were mostly unchanged from last month. As a result, the projected 2022 annual average Class III price was cut a penny to $21.94 per cwt. The projected Class IV price was reduced 3 cents to $24.47 per cwt. The 2022 all-milk price forecast was cut a dime to $25.55 per cwt.

For 2023, the price forecasts for all components were lower with expectations of weak domestic demand and price pressure in international markets. Compared to earlier estimates, the projected 2023 Class III price was reduced 95 cents to $18.85 per cwt, while the Class IV price forecast was cut 85 cents to $19.25 per cwt. The projected 2023 all-milk price was reduced 90 cents to $21.60 per cwt.

Read: USDA reduces 2022-23 milk production, price projections