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Looking back at the 2023 version of “what we did last summer,” one thing is clear: Class IV milk didn’t jump into Federal Milk Marketing Order (FMMO) pools. Meanwhile, more Class I (fluid) milk is headed back to school after a seasonal recess.

Natzke dave
Editor / Progressive Dairy

Administrators of the 11 FMMOs reported August 2023 prices and pooling data, Sept. 11-14. It’s probably more than you wanted to know, but here’s Progressive Dairy’s monthly review of the numbers to provide some additional transparency to your milk check.

Uniform prices, PPDs

Compared with July, August 2023 statistically uniform milk prices were higher in 10 of 11 FMMOs (Table 1); the exception was Florida. Those FMMOs with highest Class III milk utilization rates showed the greatest increases thanks to higher component values.

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Despite that, the highest uniform price for the month was in Florida at $21.84 per hundredweight (cwt), with the low in the Upper Midwest at $17.35 per cwt. The good news in the Upper Midwest: The uniform price was up $3.17 per cwt from July.

August baseline producer price differentials (PPDs) were lower across all applicable FMMOs (Table 1), with a high of $2.24 per cwt in the Northeast to a low of 16 cents in the Upper Midwest. PPDs have zone differentials, so actual amounts will vary within each FMMO. And milk handlers may apply “market adjustment factors” differently on your milk check.

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Class prices for August

  • Class I base price: At $16.62 per cwt, it was down 70 cents from July and $8.51 less than August 2022. It’s the lowest level since September 2021. 
  • Class I base with zone differentials: Class I prices averaged approximately $19.44 per cwt across all FMMOs, ranging from a high of $22.02 per cwt in Florida to a low of $18.42 per cwt in the Upper Midwest.
  • Class I mover formula: Analyzing the Class I mover, the spread in the monthly advanced Class III skim milk pricing factor ($4 per cwt) and advanced Class IV skim milk pricing factor ($8.95 per cwt) was $4.95 per cwt, the widest spread since October 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 $18.28 per cwt, about $1.66 more than the actual price determined using the “average-of plus 74 cents” formula.
  • Class II milk price: At $19.91 per cwt, the August Class II milk price was up 79 cents from July and the highest since February, but $7 less than August 2022.
  • Class III milk price: At $17.19 per cwt, the Class III milk price jumped $3.42 from July and was the highest since April. It’s still $2.91 less than August 2022.
  • Class IV milk price: At $18.91 per cwt, the August 2023 Class IV milk price was up 65 cents from July and the highest since January but $5.90 less than August 2022.
  • Class III-IV milk price spread: Affecting FMMO pooling, the August 2023 Class IV milk price was $1.72 more than the month’s Class III milk price. While it was the narrowest spread since April, it didn’t eliminate the incentives for Class IV depooling.

Component values, tests

Contributing to the August milk class price calculations in the seven FMMOs utilizing component pricing (Northeast, Upper Midwest, Central, Mideast, California, Pacific Northwest and Southwest), the protein value came off a four-year low, and the butterfat value increased again. The value of milk protein jumped nearly 89 cents from July to about $2.09 per pound, the highest since April. The value of butterfat rose more than 22 cents to $3.02 per pound, the highest (and the first month above $3 per pound) since December 2022.

The value of nonfat solids dipped 1.5 cents to about 96 cents per pound, while the value of other solids dropped 0.4 cent to just under 6.5 cents per pound.

Butterfat values also rose in the four FMMOs utilizing skim-fat pricing: Appalachian, Florida, Southeast and Arizona.

Affecting statistical uniform prices “at test,” weather factors meant August average butterfat and protein tests in pooled milk were mixed compared with July marketings in FMMOs providing preliminary data.

Impact on pooling

With school meal programs reopening, August Class I pooling was up about 341 million pounds from July. At 3.42 billion pounds, it represented about 27% of total milk pooled. Class II pooling was up 15.3 million pounds, to 1.28 billion pounds, representing about 9.9% of the total pooled.

Compared to a month earlier, August brought a little less Class III milk to the pool, while pooling of higher-value Class IV milk also declined. At 7.36 billion pounds, Class III pooling represented about 57.2% of the total pool (Table 2). Class IV pooling across all FMMOs declined from July to 803.5 million pounds and represented just 6.2% of the total milk pooled (Table 2). Class IV volume and percentage pooled were the lowest in a year.

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The USDA releases August milk production estimates on Sept. 18. Based on the FMMO data, the volume of milk pooled during the month was 12.86 billion pounds, up about 54 million pounds from July.

With heavier depooling of Class IV milk, the percentage of monthly U.S. milk production marketed through FMMOs has slumped since peaking at more than 75% in March. That percentage slipped to about 67% in June and July.

Looking ahead

Milk price relationships are changing. September 2023 uniform prices and pooling totals will be announced around Oct. 11-14. Based on FMMO advanced prices and current futures prices, milk prices will improve:

  • Class I base price: Already announced, the September advanced Class I base price is $18.90 per cwt, up $2.28 from August but still $4.72 less than September 2022.
  • Class I base with zone differentials: Adding zone differentials, September Class I prices will average approximately $21.72 per cwt across all FMMOs, ranging from a high of $24.30 per cwt in Florida to a low of $20.70 per cwt in the Upper Midwest.
  • Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($7.15 per cwt) and advanced Class IV skim milk pricing factor ($8.64 per cwt) is $1.49 per cwt, the narrowest spread since May. The Class I mover calculated under the higher-of formula would also have resulted in a Class I base price of $18.90 per cwt, equal to the actual price determined using the average-of plus 74 cents formula.
  • Other class prices: September Class II, III and IV milk prices will be announced on Oct. 4. As of the close of trading on Sept. 14, the September Chicago Mercantile Exchange (CME) Class III milk futures price closed at $18.40 per cwt, a $1.21 jump from August and the highest since April. The September Class IV milk futures price closed at $18.70 per cwt, down 21 cents from August.
  • Class III-IV milk price spread: If those futures prices hold, the September Class III-IV spread dips to just 30 cents, the smallest spread since March and eliminating most incentives for Class IV depooling.

As always, markets change.

FMMO hearing continues

Standards establishing FMMO pooling and depooling (and repooling) requirements vary by individual order. Along with PPDs, they are not included in the FMMO modernization hearing currently underway.

Speaking during a panel discussion at last year’s World Dairy Expo, Jim Sleper, who oversaw the National Milk Producers Federation’s FMMO Task Force, said members determined those hot-button topics were regional issues and separate from the national discussion. Read: Potential FMMO hearing not likely to directly address depooling, PPDs