Update highlights

Natzke dave
Dave Natzke
Editor / Progressive Dairy

January FMMO Class III-IV prices lower

Federal Milk Marketing Order (FMMO) Class III and IV milk prices declined in January, and the spread between the two class prices narrowed. FMMO pooling estimates, uniform prices and producer price differentials are scheduled to be released beginning later this week. Check back with Progressive Dairy for an update on Feb. 15.

January 2023 Class II, III and IV prices were all the lowest since December 2021. Class prices announced on Feb. 1 were:

  • At $21.61 per hundredweight (cwt), the January Class II milk price is down $1.50 from December and $1.22 less than January 2022. The 2022 average was $25.27 per cwt.
  • At $19.43 per cwt, the January 2023 Class III milk price fell $1.07 from December and is 95 cents less than January 2022. The 2022 Class III milk price averaged $21.96 per cwt.
  • At $20.01 per cwt, the January 2023 Class IV milk price declined $2.11 from December and was $3.08 less than January 2022. The 2022 Class IV price average $24.47 per cwt.

Potentially affecting FMMO pooling, the January 2023 Class IV milk price is 58 cents more than the month’s Class III milk price, the narrowest spread since May 2022. The Class IV-III spread averaged $2.52 per cwt in 2022.

In addition to Class II-III-IV prices announced above, the January 2023 advanced Class I base price was announced at $22.41 per cwt, down 17 cents from December 2022. With zone differentials, January Class I prices averaged approximately $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.

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

The value of butterfat fell more than 38 cents from December 2022 to about $2.77 per pound, the lowest since December 2021. It’s the first month the value of butterfat dropped below $3 per pound since January 2022.

The value of milk protein rose about 15 cents from December to just over $2.80 per pound, the highest since July 2022.

The value of nonfat solids fell 9 cents to about $1.19 per pound, while the value of other solids dipped 3 cents to 23.4 cents per pound.

Based on current milk futures prices, Class III-IV milk prices will decline in February, with the Class IV futures price regaining strength quicker, adding incentives for Class IV depooling.

As of the close of trading on Feb. 6, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $17.84 per cwt for February; the Class IV milk futures price closed at $18.76 per cwt. The spread between the Class III-IV futures prices grows to $1.44 in March and $1.10 in April. 

Fed raises interest rate

Meeting on Jan. 31-Feb. 1, the Federal Reserve Board raised interest rates by 0.25%, boosting the federal funds rate to 4.75%, the highest in 15 years. The increase was the eighth since last March. The board cited easing inflation for the smaller increase relative to previous rate hikes. The next meeting of the Federal Open Market Committee is scheduled for March 21-22.

GDT index rises

The latest Global Dairy Trade (GDT) auction, held Feb. 7, posted the first increase in the overall dairy product price index since early December. The index rose 3.2%, with prices in individual product categories mostly higher:

  • Skim milk powder was unchanged at $2,829 per metric ton (MT, or about 2,205 pounds).
  • Whole milk powder was up 3.8% to $3,329 per MT.
  • Anhydrous milkfat was up 4.8% to $5,586 per MT.
  • Butter was up 6.6% to $4,745 per MT.
  • Cheddar cheese was up 2.3% to $4,980 per MT.

The GDT platform offers dairy products from six global companies: Fonterra (New Zealand), Dairy America (U.S.), Amul (India), Arla (Denmark), Arla Foods Ingredients (Denmark) and Polish Dairy (Poland). The next GDT auction is Feb. 21.

Ag producer sentiment starts year stronger

The economic outlook of agricultural producers started 2023 on a slightly more positive note, according to results of the monthly Purdue University/CME Group Ag Economy Barometer survey. However, expectations of tighter income margins remain.

The Ag Economy Barometer provides a monthly snapshot of farmer sentiment regarding the state of the agricultural economy. The survey collects responses from 400 producers whose annual market value of production is equal to or exceeds $500,000. Minimum targets by enterprise are as follows: 53% corn/soybeans, 14% wheat, 3% cotton, 19% beef cattle, 5% dairy and 6% hogs. Latest survey results, released Feb. 7, reflect ag producer outlooks as of Jan. 16-20.

Weighted toward corn and soybean producers, the improvement in current sentiment was limited by producers' concerns over rising machinery and new construction costs and interest rates, said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture.

In January, 22% of survey respondents said they expect to have a larger 2023 farm operating loan compared to 2022, down from 27% last year. Among respondents who expect to have a larger operating loan, 80% indicated it was due to increased input costs, while only 5% said it was due to carrying over unpaid operating debt.

"The sharp decline in the percentage of producers expecting to carry over unpaid operating debt is important," said Mintert. "It supports the idea that the vast majority of producers are entering 2023 in a strong financial position despite the rise in production costs."

Coming up

  • The USDA’s World Ad Supply and Demand Estimates report is released Feb. 8, updating 2023 milk production and price projections.
  • The USDA’s Foreign Agricultural Service reports December 2022 dairy and agricultural export totals on Feb. 8-9, proving monthly and year-end estimates.

Check the Progressive Dairy website for updates as they become available.