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August: Negative PPDs hang on but uniform prices mixed

Progressive Dairy Editor Dave Natzke Published on 15 September 2020

Negative producer price differentials (PPDs) improved on August milk marketings, but they didn’t go away, based on Federal Milk Marketing Order (FMMO) monthly milk utilization and uniform price calculations. August uniform milk prices across all 11 FMMOs were mixed compared with a month earlier.

Uniform prices calculated

Compared with July prices, month-to-month changes in August uniform prices ranged from a $1.97 per hundredweight (cwt) decline in the Upper Midwest FMMO to an increase of $1.89 per cwt in the Florida FMMO (Table 1). Uniform prices were lower in four of the seven FMMOs implementing multiple component pricing – California, Northeast, Pacific Northwest and Upper Midwest.

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091520 natzke fmmo tbl1

Affecting uniform price calculations, the two-month price inversion between Class I and Class III milk has ended. The August Class I base price was $19.78 per cwt; the August Class III price was $19.77 per cwt. However, the wide spread ($7.24 per cwt) in the August Class III ($19.77 per cwt) price and Class IV milk price ($12.53 per cwt) remained.

As in July, the largest increases (91 cents-$1.89) in uniform prices were in the Southeast, Florida and Appalachian FMMOs, where Class I milk utilization is the highest.

PPDs still negative

PPDs remained negative in all seven FMMOs using multiple component pricing, although the depth improved $4-$5 from July in several of them (Table 1).

At -$5.24 per cwt, California’s base PPD was again the leader, even though it rose $4.58 per cwt from July. And since PPDs have location adjustment factors, some producers in California will see PPDs of -$5.74 per cwt.

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Elsewhere, base PPDs ranged from -$1.76 in the Northeast to -$3.76 in the Southwest.

As in June and July, what dairy farmers might see in their milk checks may be vastly different than their neighbors’, depending on their milk handler, the level of depooling, how much of the negative PPD is passed along and what the handler does with those proceeds.

Protein still the king, depooling continues

Although down from July, the value of protein remained strong in August at $4.44 per pound. In comparison, the butterfat price was $1.63 per pound, contributing to the wide spread in Class III and Class IV prices and again providing some incentive for Class III depooling.

Compared with July, August Class III utilization as a percent of all milk uses in each FMMO is shown in Table 2. Slightly more Class III milk rejoined the FMMO pools in August, although volume remains well below normal. Through the first five months of 2020, Class III milk pooled in all 11 FMMOs averaged more than 4.34 billion pounds per month. With depooling, that fell to 1.37 billion pounds in June, 1.41 billion pounds in July and 1.55 billion pounds in August.

091520 natzke fmmo tbl2

It should be noted, however, that less Class III milk in the pool has been an ongoing trend. Monthly Class III milk volumes pooled in all orders since the start of 2020 have been below nearly all comparable months in 2016-19.

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A major reason: the value of protein. Through August, the value of protein in 2020 has averaged $1.63-$1.80 per pound more than the same periods in 2016-19.

The value of butterfat topped the value of protein in January 2017, a streak that lasted until September 2019. With few exceptions, Class III volumes pooled across all orders has trended lower since then.

Little Class III pooling in California

California adds even more to the story. The state joined the FMMO system in late 2018, and it didn’t take long for milk handlers to learn the economic benefits of depooling Class III milk as protein values escalated. After pooling 1.2 billion to 1.4 billion pounds of Class III milk each month through March 2019, volumes fell off. After a brief surge back to 1.38 billion in June 2019, Class III volumes pooled on the California FMMO have fallen sharply, below 50 million pounds in nine of the past 11 months and averaging under 12 million pounds in June-August 2020.

Looking ahead, we already know the September FMMO Class I base price will dip to $18.44 per cwt. September Class II, III and IV prices will be announced Sept. 30.  end mark

Dave Natzke
  • Dave Natzke

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