Administrators of the 11 Federal Milk Marketing Orders (FMMOs) reported February 2023 prices and pooling data. A shorter month meant less milk was pooled, but other trends remained mostly the same. Uniform or blend prices were lower, producer price differentials (PPDs) were slightly higher, the “average-of” Class I mover formula provided a small benefit on Class I prices, and more Class IV milk returned to the pool.
Here’s Progressive Dairy’s monthly review of the numbers to provide some additional transparency on your milk check.
Uniform prices, PPDs
Compared with January, February 2023 statistically uniform milk prices were all lower (Table 1). Ten of 11 FMMOs saw uniform prices down by $1 per cwt or more from the month before.
The highest uniform price for the month was in Florida FMMO 6 at $25.12 per cwt, with the low in the Upper Midwest 30 at $18.09 per cwt.
February baseline PPDs were slightly higher across all applicable FMMOs (Table 1), ranging from a high of $2.97 per hundredweight (cwt) in the Northeast 1 to a low of 31 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.
Class prices for February
Compared to a month earlier, all FMMO milk class prices were lower in February and in most cases the lowest in since the fourth quarter of 2021:
- Class I base price: $20.78 per cwt, down $1.63 from January and 86 cents less than February 2022
- Class I base with zone differentials: $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
- Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($10.28 per cwt) and advanced Class IV skim milk pricing factor ($11 per cwt) was 72 cents per cwt, the narrowest gap since June 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 $20.41 per cwt, 37 cents less than the actual price determined using the “average-of plus 74 cents” formula. That’s the first time the average of formula yielded a higher Class I base price than the previous higher of formula since June 2022.
- Class II milk price: $20.83 per cwt, down 78 cents from January and $2.96 less than February 2022
- Class III milk price: $17.78 per cwt, down $1.65 from January and $3.13 less than February 2022
- Class IV milk price: $18.86 per cwt, down $1.15 from January and $5.14 less than February 2022
- Class III-IV milk price spread: 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.
Component values, tests
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.
Affecting statistical uniform prices “at test,” average butterfat and protein tests in pooled milk were down slightly from January in FMMOs providing preliminary data. With its high average butterfat (4.4%) and protein (3.43%) tests, producers in the Pacific Northwest 124 had the potential to see the at-test price at $22.44 per cwt, more than $3.50 above the statistically uniform price. In Central 32, the at-test average was $21.79 per cwt, $2.80 above the statistically uniform price. In California 51, the at-test average was $21.83 per cwt, $2.73 above the statistically uniform price.
Impact on pooling
With the shorter month, overall milk pooling on all FMMOs in February was down about 1 billion pounds from January at 13.1 billion pounds. The USDA releases February milk production estimates on March 30, determining the percent of U.S. milk production pooled through FMMOs.
February Class I pooling was down 385 million pounds from January and at 3.2 billion pounds represented about 24.5% of total milk pooled. Class II pooling was down 81 million pounds, representing about 8.6% of the total pooled.
Class III pooling was down 616 million pounds from January at 6.93 billion pounds, representing about 52.9% of the total pool (Table 2).
At about 1.84 billion pounds in February, Class IV pooling across all FMMOs increased 64 million million pounds from January and represented about 14% of the total milk pooled (Table 2). It was the highest Class IV volume and percentage since May 2022.
Looking ahead
March 2023 uniform prices and pooling totals will be announced around April 11-14. The outlook for March prices remains on the decline:
- Class I base price: Already announced, it’s $18.99 per cwt, down $1.79 from February and $3.89 less than March 2022. Through the first quarter of 2023, the Class I base price averages $20.73 per cwt, 68 cents less than the same period a year ago.
- Class I base with zone differentials: $21.81 per cwt across all FMMOs, ranging from a high of $24.39 per cwt in the Florida FMMO 6 to a low of $20.79 per cwt in the Upper Midwest FMMO 30
- Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($8.49 per cwt) and advanced Class IV skim milk pricing factor ($9.60 per cwt) is $1.11 per cwt, up slightly from February but still the second narrowest since June 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 $18.80 per cwt, 19 cents less than the actual price determined using the average-of plus 74 cents formula.
- Other class prices: March Class II, III and IV milk prices will be announced on April 5. As of the close of trading on March 14, the March Chicago Mercantile Exchange (CME) Class III milk futures price closed at $17.95 per cwt, up 17 cents from February; the March Class IV milk futures price closed at $18.30 per cwt, down 56 cents from February.
- Class III-IV milk price spread: Based on those futures prices, the March spread in Class III-IV milk prices will shrink to 35 cents per cwt and average just 25 cents through December, virtually eliminating incentives to depool either Class III or Class IV milk.
As always, markets change.
WASDE outlook
The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report, released March 8, reduced the milk production estimate for 2022 but raised the forecast for 2023, and also lowered the 2023 Class III and all-milk price forecasts.
Read: USDA boosts 2023 milk production outlook, reduces Class III, all-milk price projections
