Federal Milk Marketing Order (FMMO) uniform milk prices slipped lower in December, a combination of lower milk class prices and continued depooling of Class IV milk.
Administrators of the 11 FMMOs reported December 2023 prices and pooling data, Jan. 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 November, December 2023 statistically uniform milk prices were down in all 11 FMMOs (Table 1), with declines of $1 or more in six of them. Largest declines were in highest Class III and lowest Class I utilization areas.
The highest uniform price for the month was in Florida at $23.62 per hundredweight (cwt), with the low in the Upper Midwest at $16.40 per cwt.
December baseline producer price differentials (PPDs) were up slightly across all applicable FMMOs (Table 1), with a high of $3.67 per cwt in the Northeast to a low of 36 cents in the Upper Midwest. PPDs have zone differentials, so actual amounts will vary within each FMMO. Milk handlers may apply PPDs and other “market adjustment factors” differently on your milk check.
Class prices for December
- Class I base price: At $19.76 per cwt, it was up a penny from November and a 10-month high, but still $2.82 less than December 2022.
- Class I base with zone differentials: Adding zone differentials, December Class I prices averaged approximately $22.58 per cwt across all FMMOs, ranging from a high of $25.16 per cwt in the Florida FMMO to a low of $21.56 per cwt in the Upper Midwest FMMO.
- Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($5.34 per cwt) and advanced Class IV skim milk pricing factor ($9.08 per cwt) narrowed slightly for December to $3.74 per cwt. It was still the third-widest monthly spread for the year.
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 $20.85 per cwt, about $1.09 more than the actual price determined using the “average-of plus 74 cents” formula.
For the year, the spread in the advanced Class III-IV skim milk factor was $2.15 per cwt. Based on Progressive Dairy calculations, the 2023 Class I mover calculated under the higher-of formula would also have resulted in a Class I base price of $19.44 per cwt, about 24 cents more than the actual price determined using the average-of plus 74 cents formula.
- At $19.88 per cwt, the December Class II milk price was down $1.33 from November and $3.23 less than December 2022.
- At $16.04 per cwt, the Class III milk price fell $1.11 from November and $4.46 less than December 2022. It was the lowest since July.
- At $19.23 per cwt, the December 2023 Class IV milk price was down $1.64 from November and $2.89 less than December 2022. Potentially affecting FMMO pooling, the December 2023 Class IV milk price was $3.19 more than the month’s Class III milk price.
Annual price averages
With December prices, average 2023 milk classes prices were: Class I base – $19.20 per cwt, $4.46 less than 2022; Class II – $20.10 per cwt, down $5.17; Class III – $17.02 per cwt, $4.94 less than a year earlier; and Class IV – $19.12 per cwt, down $5.35 per cwt from 2022.
Component values, tests
Contributing to the December milk class price calculations, the value of butterfat dropped while the value of protein rose somewhat. The value of butterfat fell about 48 cents to $2.98 per pound, the first month under $3 per pound since July. The value of milk protein rose about 12.5 cents from November to about $1.35 per pound, a three-month high.
The value of nonfat solids rose slightly to about $1.01 per pound, while the value of other solids increased about 3.5 cents, to 22.4 cents per pound.
Affecting statistical uniform prices “at test,” December average butterfat tests in pooled milk were up in nearly all FMMOs providing preliminary data. In most areas, butterfat tests were up 0.2%-0.5% from November. However, protein tests were down 0.01%-0.03% in the same FMMOs compared to a month earlier.
Pooling totals
Even though there was one more marketing day in December compared to November, Class I pooling was down about 51.1 million pounds. At 3.45 billion pounds, it represented just over 27% of total milk pooled. Class II pooling was down about 120 million pounds, to 1.08 billion pounds, representing about 8.5% of the total pooled.
Compared to a month earlier, December brought more Class III milk to the pool, while pooling of higher-value Class IV milk also increased somewhat. At 7.1 billion pounds, Class III pooling represented about 56.1% of the total pool (Table 2). Class IV pooling increased to 1.02 billion pounds and represented 8.1% of the total milk pooled (Table 2), both three-month highs.
The USDA releases December milk production estimates on Jan. 24. Based on the FMMO data, the volume of milk pooled during the month was 12.66 billion pounds, up about 270 million pounds from November.
Looking ahead
January uniform prices and pooling totals will be announced on Feb. 11-14. Based on FMMO advanced prices and current futures prices, milk prices are headed lower for January production.
- Class I base price: Already announced, the January 2024 advanced Class I base price is $18.48 per cwt, $1.28 less than December 2023 and $3.93 less than January a year earlier.
- Class I base with zone differentials: Adding zone differentials, January Class I prices will average approximately $21.30 per cwt across all FMMOs, ranging from a high of $23.88 per cwt in the Florida FMMO to a low of $20.28 per cwt in the Upper Midwest FMMO.
- Class I mover formula: The spread in the monthly advanced Class III skim milk pricing factor ($5.74 per cwt) and advanced Class IV skim milk pricing factor ($9.25 per cwt) narrowed slightly for January, to $3.51 per cwt.
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 $19.46 per cwt, about 98 cents more than the actual price determined using the average-of plus 74 cents formula.
- Other class prices: January Class II, III and IV milk prices will be announced on Jan. 31. As of the close of trading on Jan. 12, the January Chicago Mercantile Exchange (CME) Class III milk futures price closed at $15.15 per cwt, down 89 cents from December. The January Class IV milk futures price closed at $19.28 per cwt, up a nickel from December.
- Class III-IV milk price spread: If those futures prices hold, the January Class III-IV spread will jump to $4.13, intensifying incentives for Class IV depooling.
Looking longer term, 2024 Class III futures prices at the close of trading on Jan. 12 averaged $17.50 per cwt; the Class IV futures averaged $19.62 per cwt. That would yield an average Class III-IV price spread of $2.12 per cwt, maintaining Class IV depooling throughout the year.
Other information
- Released Jan. 12, the USDA’s monthly World Ag Supply and Demand Estimates (WASDE) and monthly and annual Crop Production reports identify milk and feed factors potentially impacting dairy producer income in the year ahead. The 2024 milk production forecast was lowered from last month but price projections remain weaker, pressured by cheese and Class III milk. Read: USDA milk production, price outlooks remain stagnant
- With the national hearing on FMMO price formulas resuming on Jan. 16, American Farm Bureau Federation economist Daniel Munch discusses how the 2019 change in the Class I milk price formula has resulted in continued revenue pool losses. In November 2023, cumulative pool losses since the formula change passed $1 billion. With no immediate changes in sight from the ongoing FMMO hearing or in renewed farm bill discussions, dairy farmers continue to feel the impacts of diminished pool values and outdated pricing regulations. Read: Federal order pool losses continue from 2018 Farm Bill formula change
Check the Progressive Dairy website for the December milk production report on Jan. 24 and the December Dairy Margin Coverage (DMC) program margin on Jan. 31. Also, watch for details on the ongoing national hearing regarding FMMO price formulas as well as information on enrolling in the 2024 DMC program.
