Update highlights

Natzke dave
Dave Natzke
Editor / Progressive Dairy

February FMMO milk class prices back to 2021 levels

Federal Milk Marketing Order (FMMO) Class III and IV milk prices declined in February, and the spread between the two class prices widened. What impact that has on prices and marketing will be revealed next week when FMMO pooling estimates, uniform prices and producer price differentials are scheduled to be released. Check back with Progressive Dairy for an update on March 15.

February 2023 Class II, III and IV prices were the lowest since the fourth quarter of 2021. Class prices announced on March 1 were:

  • At $20.83 per hundredweight (cwt), the February Class II milk price is down 78 cents from January and $2.96 less than February 2022.
  • At $17.78 per cwt, the February 2023 Class III milk price fell $1.65 from January and is $3.13 less than February 2022.
  • At $18.86 per cwt, the February 2023 Class IV milk price declined $1.15 from January and is $5.14 less than February 2022.

Potentially affecting FMMO pooling, the February 2023 Class IV milk price is $1.08 more than the month’s Class III milk price, an increase of 50 cents from January. While still the second narrowest spread since June 2022, it provides incentives for Class IV depooling.

In addition to Class II-III-IV prices announced above, the February 2023 advanced Class I base price was announced at $20.78 per cwt, down $1.63 from January and 86 cents less than February 2022. February Class I prices will average approximately $23.60 per cwt across all FMMOs, ranging from a high of $26.18 per cwt in the Florida FMMO 6 to a low of $22.58 per cwt in the Upper Midwest FMMO 30.

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Butterfat, protein values lower

Leading to the decline in February Class III and IV milk prices, the values of butterfat and protein both tumbled.

  • The value of butterfat fell more than a nickel from January to about $2.72 per pound, the lowest since December 2021. It’s the second consecutive month the value of butterfat dropped below $3 per pound.
  • The value of milk protein fell even further, down about 44 cents from January to $2.365 per pound, the lowest since September 2022.
  • The value of nonfat solids fell 11 cents to about $1.18 per pound, while the value of other solids dipped 3 cents to 21 cents per pound.

Looking ahead

Based on current milk futures prices, Class III-IV milk prices will decline slightly into May, while the average Class IV milk price maintains a small premium over the Class III milk price.

As of the close of trading on March 1, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $17.75 per cwt for March and $17.59 per cwt for April. The Class IV milk futures price closed at $18.55 per cwt for March and $18.38 per cwt for April. If those prices hold, the March-April Class III-IV milk price gap will be about 80 cents. 

Global dairy product prices declined in February

The average global cost of dairy products declined in February, according to the latest United Nations’ Food and Agriculture Organization (FAO) food price index. 

The FAO dairy price index includes global average prices for butter, cheese, skim milk (SMP) and whole milk powders (WMP). The February 2023 index decreased about 2.7% from January and was about 7% lower than February 2022.

The decline in the index was driven by lower prices across all dairy products, with the steepest falls in butter and SMP. The continued weakness in global import demand, especially for near-term deliveries, underpinned the price declines despite a noticeable increase in purchases in recent weeks by North Asia. In addition, increased exportable supplies in Western Europe, including inventories of butter, cheese and SMP, tracked an increase in seasonal milk deliveries in recent months.

The FAO food price Index is a measure of the monthly change in international prices of a basket of five food commodities – cereal, vegetable oil, dairy, meat and sugar. The overal index was down 0.6% in February, with higher sugar prices mostly offsetting lower prices across other categories.

Dairy margins ended February modestly higher

After a flat start to the month, dairy margins increased modestly over the second half of February as declining milk prices and projected feed costs were mostly offsetting, according to Commodity & Ingredient Hedging LLC.

Using Dairy Margin Coverage (DMC) program calculations, the January DMC margin fell to $7.94 per cwt, the narrowest margin over feed costs since December 2021. DMC monthly margins are forecast to average about $6.50 per cwt between February and June.

Despite almost record-high cow slaughter during the month, an increase in January milk production weighed on Class III futures. (Read: January cull dairy cow marketing jumps and U.S. milk production starts 2023 stronger)

RaboResearch: The dairy squeeze is on

Participants all along the dairy value chain are being squeezed, according to a new report from Rabobank. Producers’ milk prices have tumbled from 2022’s lofty levels, while feed prices are at record highs. Processors and dairy cooperatives entered the year discounting expensive inventory made with high-priced milk. Meanwhile, higher inflation and rising interest rates are pressuring consumers toward more frugal purchasing behavior.

Greater year-on-year milk production growth has emerged in 2023 in the key export regions, compared to 2022’s low levels. At the same time, farmgate milk prices are catching up to global commodity market trends and have moved lower. Expensive input costs remain a clear headwind worldwide and, combined with lower milk prices, are resulting in farm-level margin pressure. In response, dairy cow slaughter rates have escalated.

“Milk production from the 'big seven' export regions is anticipated to grow by 0.7 percent year on year in 2023, following 2022’s decline of 0.9 percent,” said Mary Ledman, global sector strategist for dairy at Rabobank. “Rabobank downgraded its 2023 forecast from last quarter’s estimate of 1 percent. This slower growth is attributed to increased culling in the U.S. and weather-related production challenges in New Zealand, Brazil and Argentina.”