Here’s an update on economic factors impacting your dairy’s financial picture as we turn the calendar to February 2024.

Natzke dave
Dave Natzke
Editor / Progressive Dairy

January FMMO milk class prices mixed

Dairy producers’ milk checks based on January 2024 Federal Milk Marketing Order (FMMO) blended milk class prices will likely be smaller this month.

Announced on Jan. 31, FMMO Class II, III and IV prices were mixed compared to a month earlier, with small gains in Class II and Class IV prices offsetting declines in the price for Class III milk. A wide Class III-IV price spread also maintains substantial Class IV depooling incentives.

January 2024 FMMO pooling estimates, uniform prices and producer price differentials (PPDs) will be released on Feb. 11-14 and summarized on Feb. 15. Watch Progressive Dairy’s website for an update.

Class prices announced on Jan. 31 were:

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  • At $20.04 per hundredweight (cwt), the January Class II milk price is up 16 cents from December but $1.57 less than January 2023.
  • At $15.17 per cwt, the Class III milk price fell 87 cents from December and is $4.26 less than January 2023. It is the lowest since last July.
  • At $19.39 per cwt, the January 2024 Class IV milk price is up 16 cents from December but is 62 cents less than January 2023. Potentially affecting FMMO pooling, the January 2024 Class IV milk price is $4.22 more than the month’s Class III milk price.

The January 2024 advanced Class I base price was previously announced at $18.48 per cwt, $1.28 less than December 2023 and $3.93 less than January a year earlier.

Contributing to the January milk class price calculations, the value of both butterfat and protein were down from the previous month.

The decline in the value of butterfat was small, just one-tenth of a cent, to $2.9765 per pound, the second month under $3 per pound since July. The value of milk protein dropped about 32 cents from December to about $1.1256 per pound, a three-month low.

The value of nonfat solids rose slightly to about $1.03 per pound, while the value of other solids increased about 1.5 cents to 24.2 cents per pound.

Based on FMMO advanced prices and current futures prices, the outlook for February milk prices is also mixed. Already announced, the February 2024 advanced Class I base price is $17.99 per cwt, 49 cents less than January 2024 and $2.79 less than February a year ago.

As of trading on Jan. 31, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $16.10 per cwt for January, up 93 cents from the January price. The Class IV milk futures price closed at $19.76 per cwt for February, up about 37 cents from January.

If Class III-IV futures prices hold, the February Class III-IV milk price gap will be $3.66 per cwt, maintaining incentives for Class IV depooling.

Federal Reserve holds interest rate

Meeting on Jan. 30-31, the Federal Reserve Board held interest rates for federal funds steady at 5.25%-5.5%. The board had previously hinted that they expect to make three quarter-point rate cuts in 2024, possibly beginning in summer. The Federal Reserve meets eight times a year. The next meeting is scheduled for March 19-20.

Federal estate tax and gift tax limits raised for 2024

The Internal Revenue Service (IRS) announced the revised federal estate tax and gift tax limits for 2024, according to Paul Goeringer, extension legal specialist at the University of Maryland. The federal estate tax limit rises from $12.92 million in 2023 to $13.61 million in 2024. The federal gift tax limit jumps from $17,000 in 2023 to $18,000 in 2024.

A deceased person owes federal estate taxes on a taxable estate. The taxable estate is the gross estate minus allowable expenses and deductions. For example, a married farming couple with a taxable estate of $28 million both pass away in 2024. The couple’s heirs may be exempt up to $27.22 million from federal estate taxes and only owe federal estate taxes on $780,000. Since the federal estate tax rate is 40%, in this case, the heirs would owe $312,000 in federal estate taxes.

Goerginger offers another note on federal estate taxes: A surviving spouse has an unlimited marital deduction. The surviving spouse can include the predeceasing spouse’s unused federal estate tax limit in their federal estate tax limit. This concept is known as portability. The surviving spouse can lose portability upon remarrying. Note that several states allow for portability with state estate tax exemptions. Working with a tax adviser to preserve any unused federal or state estate tax exemptions is essential.

Federal tax law allows each taxpayer to gift up to $18,000 per year to one individual without incurring federal gift taxes. This exemption is tied to inflation and increases to the nearest $1,000 amount.

It is worth keeping in mind that a few states also impose estate taxes, and a few only have inheritance taxes, Goerginger said. These tax exemptions vary among the states, and in many cases are less than the federal exemption.

Farm families concerned about hitting top federal or state estate tax exemptions need to begin working on farm succession and estate plans to limit potential tax liability down the road. When developing an estate plan, state estate taxes, inheritance taxes or both should be considered by working with a qualified tax adviser who can assist you in creating a plan to limit tax liability at death.

All-milk, mailbox price spread steady in October

National average October 2023 “mailbox” prices averaged about 79 cents per cwt less than announced average “all-milk” prices for the same month:

  • October U.S. all-milk prices averaged $21.60 per cwt, up 60 cents from September 2023. All-milk prices are reported monthly by the USDA National Ag Statistics Service (NASS). The all-milk price is the estimated gross milk price received by dairy producers for all grades and qualities of milk sold to first buyers, before marketing costs and other deductions. The price includes quality, quantity and other premiums, but hauling subsidies are excluded.
  • The October 2023 mailbox prices for selected FMMOs averaged $20.81 per cwt, up 59 cents per cwt from September. The mailbox price is the estimated net price received by producers for milk, including all payments received for milk sold and deducting costs associated with marketing. Mailbox prices are reported monthly by the USDA’s Agricultural Marketing Service (AMS) and generally lag all-milk price announcements by a month or more.

Among major states, the difference in the October all-milk and mailbox prices was largest in Florida, Georgia, Texas, Oregon and Virginia, in a range of -$1.60 to -$2.45 per cwt.

As Progressive Dairy notes each month, there’s a disclaimer of sorts. The price announcements reflect similar – but not exactly the same – geographic areas. Also, within states and FMMOs, individual milk handlers and cooperatives may include a wide range of “market adjustment factors” impacting producer-member mailbox prices.

The difference in the two announced prices can affect actual dairy risk management results, since most risk management programs are based on the all-milk price.

Coming up

Watch the Progressive Dairy website and digital newsletters for upcoming dairy-related USDA reports:

  • On Feb. 7, USDA's Economic Research Service (ERS) will release the first farm income statement and balance sheet estimates and forecasts for 2024. 
  • A monthly (December 2023) look at U.S. dairy product production is released by the USDA on Feb. 5.
  • Released on Feb. 8, the USDA’s World Ag Supply and Demand Estimates report will update milk production and price, beef and dairy feedstuff price forecasts for 2024.
  • The U.S. Dairy Export Council and the USDA will provide summaries of December and full-year 2023 dairy and related exports on Feb. 8-9.
  • With the announcement of January Class II, III and IV milk prices (above), administrators of the 11 FMMOs will report prices and pooling data, Feb. 11-14.

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