What happened? And after? – Positive PPDs are coming back with class III milk for the moment
In this column, Progressive dairy products summarizes the issues in the news and attempts to describe how they might affect dairy farmers. Find more complete information and details on Progressive dairy products.
The items in this column are compiled from Progressive dairy products sources of staff information. Send news to Dave Natzke.
JUNE PPDS and FMMO POOLING
At the risk of overloading the Producer Price Differential (PPD), the reports from the Federal Milk Marketing Order (FMMO) Administrator covering the marketing of milk in June 2021 contained something that we had not seen in quite some time. time: PPDs in all applicable FMMOs were positive (Table 1).
However, Progressive dairy products heard several reports of negative PPDs on June producers’ paychecks in some areas, taking away some of that positivity.
The duration of positive PPDs remains to be determined. Affecting pooling and PPDs, the Class III-Class IV spread was only 86 cents in June, the narrowest since February 2020. As the Chicago Mercantile Exchange closed on July 19, the July and August spreads on Class III-Class IV futures prices sat at around 73 cents and 79 cents, respectively. This should be positive for pooling and PPDs throughout the summer. (Markets fluctuated a lot and actual July Class III and IV milk prices were announced on August 4, after Progressive Dairy deadline.) Beyond that, the spread averages $ 1.52 per cwt (cwt) in the fourth quarter of 2021, resuscitating the possibilities of unbundling.
At the end of the line
For the first time since the COVID-19 pandemic began to impact marketing and pricing, there has been some movement toward normality. June uniform prices on the standardized test hit six-month highs in 10 of the 11 FMMOs; the outlier was Upper Midwest # 30.
PPDs are more noteworthy: June 2021 marked the first month that benchmark PPDs were positive in all applicable FMMOs since January 2020.
As we note each month, however, PPDs have zone differentials and vary slightly within each FMMO. In addition, whether positive or negative, the impacts of DPPs on producers’ milk controls are based on the individual milk handlers. An Iowa producer told Progressive Dairy that its June paycheck included a PPD of $ -2.08 per cwt, even though the Central FMMO No. 32 PPD was advertised at +23 cents.
With the narrower class III-class IV milk price differential, the incentives to unbundle class III milk have been reduced. Percentage (Table 2), June 2021 Class III milk use and pooling levels have moved closer to pre-COVID levels.
On a volume basis, the total Class III milk pooled across all FMMOs was around 2.46 billion pounds, up from the monthly average of 1.54 billion from June 2020 to May 2021. By comparison, Class III aggregation across all FMMOs averaged £ 4.56 billion per month in January. -May 2020 and 6.6 billion pounds per month from January to August 2019.
The USDA’s first quarter 2021 milk price differences announced by the USDA have maintained the wider gap that emerged last year. In the first three months of 2021, average US “mailbox” prices were about $ 1.25 per cwt lower than average “all milk” prices for the same period.
The All Milk Price estimates the gross price of milk that farmers receive each month. The mailbox price is defined as the net price and includes most marketing and other deductions. The difference is a challenge: USDA’s risk management programs, including the Dairy Margin Coverage (DMC) program, are based on the all-milk price. With the price of the mailbox lower than the price of all milk, producers cannot use these tools to protect the “local base”.
At the end of the line
Based on USDA data, the US average difference between letterbox prices and whole milk prices fell to – $ 1.36 per cwt in 2020, from -73 cents per cwt in 2019 and -55 cents per cwt in 2018. With the COVID-19 market disruption leading to the unbundling of FMMO and negative PPDs, the differences between letterbox prices and all-milk prices were significant in the second half of 2020, peaking at -2.22 $ per cwt and at -2.15 $ per cwt in October and November, respectively.
THINGS TO LOOK FOR
Some things that could happen that could affect your bottom line when and if they happen are public hearings regarding federal dairy policy reforms.
We won’t know the date, but U.S. Senator Kirsten Gillibrand (D-New York) said she was continuing to move forward on scheduling a Senate Agriculture Subcommittee hearing on dairy policy, according to the American Dairy Coalition (ADC). Gillibrand chairs the dairy, animal husbandry, poultry, local food systems, food safety and security subcommittee. Floor sittings in the House and Senate are suspended for most of August through mid-September, with committee activity resuming in early September.
A separate avenue for possible dairy policy reform is an FMMO hearing. However, at Progressive Dairy Deadline, no formal hearing has been requested or scheduled, about three months after the board of directors of the National Federation of Milk Producers (NMPF) approved the progress of a hearing request.