June Pricing Made Record High Revenue for Many Producers
July 17, 2020
June dairy pricing provided amazing highs for many dairy producers. The press has primarily focused on the huge negative Producer Price Differentials (PPD). One of the reasons for the huge negative PPDs was that de-pooling went to record extremes. As shown in the prior post, de-pooling does not make more money available, it only spreads the money around differently. This post will provide all the important data on June pricing factors and will focus on the dairy prices that provided many producers with amazing revenue.
June PPDs were at record negative values. This is a fact, but many producers were not included in the pools for PPD adjustments to pay.
The Class III price was $21.04 per cwt., which blunted the pain of the negative PPD for those in the FMMO pools.
Milk not pooled in the FMMOs hit near record highs. Only Class I must be pooled. Other Classes can de-pool by the rules of their Federal Order.
The June "Uniform" milk price was higher than the May "Uniform" milk price in all FMMOs except Florida which is nearly all Class I milk and had a small decrease.
Milk protein prices at $4.53 per pound were near record highs for the 21-year history of protein pricing.
The Class III price was near record highs. The Class III price was only higher during two other periods during the 21 years of the program.
First, the facts Table I shows the "Uniform" milk price and the PPD in each of the Federal Orders paid on the component system. The PPDs were hugely negative. However, the "Uniform" or average milk prices were better than the previous month in every FMMO paid on components. The Upper Midwest producers that were in the pool achieved a "Uniform" price of $17.23 per cwt. in June up from $12.31 per cwt. in May. Producers with high component levels of course exceeded this price.
Table I - Uniform Milk Prices and PPDs
Class I milk cannot be de-pooled. All other classes of milk can be de-pooled with limitations. Table II shows the May to June drop in total pooled milk in each of the FMMOs. In the Upper Midwest, the largest Federal Order, pooled milk dropped by 61 percent.
Table II - Total Pooled Milk in the FMMOs
Class III milk was at an extreme high price in June, near record levels. The June Class III price was $21.04 per cwt. The Class III producers that de-pooled likely got this price for their milk. With higher components levels, they got more per cwt.
Chart I - Class III Milk Prices
Class III milk volume that was pooled fell drastically in June. Table III shows the comparison between May and June of the Class III milk that was pooled. The average amount of Class III milk pooled dropped by 71 percent overall. In some Federal Orders, Class III milk dropped by 90 percent. The Class III milk that was not pooled in Table III understates the amount of de-pooling as May also had some de-pooling. This will be further discussed later in this post.
Table III - Class III Milk Pooled in May and June 2020
Many producers have been increasing components through genetics and feed. One item that has not had much press is that the milk protein price has reached levels rivaling historic highs. Chart II reflects this. Milk protein prices for June reached $4.53 per pound. Producers emphasizing protein development through techniques like amino acid balancing had a great payday in June!
Chart II - Milk Protein Pricing since 2000
Milk volume not being pooled reached historical highs in the Upper Midwest, California, and other FMMOs. The Upper Midwest and California will be reviewed in detail below. Upper Midwest Chart III shows the estimated milk not in the pool in the Upper Midwest. The June amount of Class III milk pooled in the Upper Midwest was 542 million pounds (Table III). By comparison, the amount not pooled, which was primarily Class III, was estimated at 2,800 million pounds.
Chart III - Estimated milk not pooled in the Upper Midwest California In California, de-pooling became a way of life immediately when California became a Federal Order. Chart IV shows the estimated amount of California milk that is not pooled. While the June 2020 amount is huge, it is well below the January 2019 amount not pooled. Charts V and VI show the pooled Class III and Class IV milk in California. Prior to becoming a Federal Order, no California milk could be de-pooled. It appears that one of the major reasons for becoming a Federal Order was the ability to not pool. Milk not pooled is estimated at 1,793 million pounds in June.
Chart IV - Estimated California Milk Not Pooled
The milk not pooled is primarily Class III. The amount as shown in Chart V for pooled Class III was just 12 million pounds in June, a record low. By comparison, in December of 2018, 1,411 million pounds of Class III milk were pooled.
Chart V - California Pooled Class III Milk
Chart VI shows the volume of Class IV pooled. In the very first months of the program, almost all Class IV was de-pooled. In June there was some Class IV milk de-pooled, but the majority was pooled.
Chart VI - California Pooled Class IV Milk
As a side point, the only area where all California milk must now be pooled is in the Quota program rebalancing. All milk not covered by quota must contribute to a fund to pay a premium for milk covered by quota. This program is managed by California, not the Federal Orders. Where is this going? The upheaval in diary pricing was caused by the extreme drop followed by a very extreme increase in cheese prices. Chart VII shows the weekly NASS prices for cheese that are the basis for milk pricing. The Advanced price for June Class I was done at the lower cheese prices valued at $1.19 per pound. The Class and Component prices used later June cheese prices valued at $2.22 per pound, an increase of $1.03 per pound. See the prior post for details on Advanced Pricing compared to Class and Component pricing. The two circled numbers on Chart VII are the most recent NASS cheese prices that will be used for setting July Class and Component prices. Advanced pricing for July was announced on June 17 and used cheese at $2.03 per pound. The first two weeks average of the weeks that will be used for the component system values cheese at $2.52 per pound, an increase of $.49 per pound from when the Advanced prices were calculated. July is a five-week month for component pricing calculations and only the first two weeks of data are currently available. However, the available two weeks of data for July are showing further increases in the cheese price. The July increases to date are more moderate than the June increases but nevertheless, they are significant increases. If this continues for the next three weeks, there will be another negative PPD for July although it should be more moderate than the June negative PPD.
Chart VII - NASS Cheese Prices for 2020 YTD
Everything surrounding the impact of COVID-19 is uncharted territory and subject to quick changes. Changes will continue to be followed in this blog.