Federal Milk Marketing Order (FMMO) Class IV milk pooling trends continued into October, yielding a mixed bag for blend or “uniform” prices.
Administrators of the 11 FMMOs reported October 2023 prices and pooling data, Nov. 11-14. Here’s Progressive Dairy’s monthly review of the numbers to provide some additional transparency to your milk check.
Uniform prices, PPDs
Compared with September, October 2023 statistically uniform milk prices were higher in eight of 11 FMMOs (Table 1). In most cases, October uniform prices were the highest since January.
Once again, those FMMOs with highest Class I milk utilization rates showed the greatest increases. Three FMMOs with the highest Class III milk utilization posted declines.
The highest uniform price for the month was in Florida at $24.99 per hundredweight (cwt), with the low in the Upper Midwest at $17.28 per cwt.
October baseline producer price differentials (PPDs) were up across all applicable FMMOs (Table 1), with a high of $4.36 per cwt in the Northeast to a low of 44 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.
Class prices for October
- Class I base price: At $19.47 per cwt, it was up 57 cents from September but is still $3.24 less than October 2022.
- Class I base with zone differentials: Adding zone differentials, October Class I prices averaged approximately $22.29 per cwt across all FMMOs, ranging from a high of $24.87 per cwt in the Florida to a low of $21.27 per cwt in the Upper Midwest.
- Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($8.20 per cwt) and advanced Class IV skim milk pricing factor ($8.55 per cwt) was 35 cents per cwt, the narrowest spread since June 2022. Based on Progressive Dairy calculations, the Class I mover calculated under the “higher-of” formula would also have resulted in a Class I base price of $18.92 per cwt, about 55 cents less than the actual price determined using the “average-of plus 74 cents” formula.
- At $21.95 per cwt, the October Class II milk price was up $1.97 from September and the highest since December 2022, but $3.78 less than October 2022.
- At $16.84 per cwt, the Class III milk price fell $1.55 from September and was the lowest since July. It’s also $4.97 less than October 2022.
- At $21.49 per cwt, the October 2023 Class IV milk price was up $2.40 from September and was the highest since December 2022 but was $3.47 less than October 2022. Affecting FMMO pooling, the October 2023 Class IV milk price was $4.65 more than the month’s Class III milk price, the widest spread since September 2022.
Component values, tests
Contributing to the October milk class price calculations, the value of butterfat rose while the value of protein fell substantially. The value of butterfat jumped about 59 cents to $3.71 per pound, the third straight month above $3 per pound. The value of milk protein dropped nearly $1.26 from September to about $1.05 per pound, the lowest in several years.
The value of nonfat solids rose slightly to about 98 cents per pound, while the value of other solids increased nearly 3 cents, to 12.4 cents per pound.
Affecting statistical uniform prices “at test,” October average butterfat and protein tests in pooled milk were up in all FMMOs providing preliminary data.
Pooling totals
October Class I pooling was down about 152 million pounds from September. At 3.53 billion pounds, it represented just under 28% of total milk pooled. Class II pooling was down about 30 million pounds to 1.32 billion pounds, representing about 10.3% of the total pooled.
Compared to a month earlier, October brought a little more Class III milk to the pool, while pooling of higher-value Class IV milk declined. At 7.13 billion pounds, Class III pooling represented about 55.7% of the total pool (Table 2). Class IV pooling decreased from September to 814 million pounds and represented just 6.4% of the total milk pooled (Table 2), the second-lowest volume and percentage in the past two years.
The USDA releases October milk production estimates on Nov. 20. Based on the FMMO data, the volume of milk pooled during the month was 12.8 billion pounds, down about 313 million pounds from September.
Looking at the percentage of monthly U.S. milk production marketed through FMMOs in 2023, it peaked at more than 75% in March before slipping to about 67%-68% in May through August before returning to 72% in September.
Looking ahead
November 2023 uniform prices and pooling totals will be announced around Dec. 11-14. Based on FMMO advanced prices and current futures prices, the current price outlook is mixed.
- Class I base price: Already announced, the November 2023 advanced Class I base price is $19.75 per cwt, up 28 cents from October and a 10-month high, but still $4.34 less than November 2022.
- Class I base with zone differentials: Adding zone differentials, November Class I prices will average approximately $22.57 per cwt across all FMMOs, ranging from a high of $25.15 per cwt in the Florida FMMO 6 to a low of $21.55 per cwt in the Upper Midwest FMMO 30.
- Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($4.29 per cwt) and advanced Class IV skim milk pricing factor ($8.70 per cwt) rose dramatically for November to $4.41 per cwt, the widest spread since August. Based on Progressive Dairy calculations, the Class I mover calculated under the higher-of formula would also have resulted in a Class I base price of $21.16 per cwt, about $1.41 more than the actual price determined using the average-of plus 74 cents formula.
- Other class prices: November Class II, III and IV milk prices will be announced on Nov. 29. As of the close of trading on Nov. 14, the November Chicago Mercantile Exchange (CME) Class III milk futures price closed at $17.13 per cwt, up 29 cents from October. In contrast, the November Class IV milk futures price closed at $20.60 per cwt, down 89 cents from October.
- Class III-IV milk price spread: If those futures prices hold, the November Class III-IV spread will be $3.47, providing substantial incentives for Class IV depooling.
The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report was released Nov. 9. The milk production forecasts for 2023 and 2024 were reduced from last month, with only slight adjustments in milk price projections.
(Read: USDA outlook sees slower-than-expected growth in milk production)
