March Class I mover higher, but marks second straight month of value loss under current formula

Weekly MARKET MOOS, by Sherry Bunting, Farmshine, Feb. 18, 2022

March Class I ‘mover’ $22.88 instead of $23.67

The March Class I base price, or ‘mover’, was announced Wed., Feb. 16 at $22.88. This is $1.24 higher than the Feb. Class I ‘mover’ and $7.60 higher than a year ago. This marks the 6th consecutive month of Class I mover gains.

However, for the second consecutive month, the Class I mover is at a level lower than it would have been under the previous ‘higher of’ formula. Announced at $22.88 for March 2022 using the average-plus method, this is 79 cents lower than the $23.67 it would have been under the previous ‘higher of’ formula.

As shown above, the net loss in Class I value since the new formula was implemented in May 2019 is over $738 million. This could continue for the foreseeable future if this week’s futures markets are an indication.

Near term futures diverge by $2 to $3; 12-mo. Cl. III avg. $21.34, IV $23.28

Class III milk contracts came under pressure at midweek while Class IV surged solidly higher. This created more divergence between the two this week — to spreads beyond the $1.48 ‘magic number’ for all but three of the next 12 month contracts. ($1.48 is the point when the Class I price set by the current average-plus method becomes a loss compared to the previous ‘higher of’ method.)

We already saw this occur for the February and March 2022 Class I mover (above).
But the good news is the overall price levels are the highest in 8 years for most of these months — just not as much higher as they would have been using the ‘higher of’ method.

The average spread between the two milk contracts for the next 12 months Feb. 2022 through Jan. 2023 stands at $1.94/cwt this week.

Class III milk futures averaged $21.34 for the next 12 months, 8 cents lower than the average a week ago.

Class IV futures averaged $23.28 for the next 12 months, gaining 47 cents on top of last week’s 67-cent gain, now up fully $2.00 compared with a month ago.

CME spot dairy products all higher, except whey slips a penny

CME spot dairy prices moved higher on all products this week, except whey slipped another penny. Butter made the biggest gains, followed by block cheddar.

On Wed., Feb. 16, butter was pegged at $2.80/lb with 7 loads trading. This is up a whopping 27 cents compared with a week ago but 7 cents below the high for the week at 2.87/lb on the previous day.

Grade A nonfat dry milk (NFDM) hit $1.90 this week, then lost a penny Wed., Feb. 16, pegged at $1.89/lb — still a 2 1/2 cent gain over a week ago with a single load changing hands.

On the Class III side of the ledger Wed., Feb. 16, 40-lb Cheddar blocks were pegged at $1.9825/lb, up 8 cents from the previous Wednesday with 3 loads trading; 500-lb barrels at $1.92 are up 6 cents from a week ago with 3 loads trading.

The spot market for dry whey lost another penny this week, but remains above the 80-cent mark. On Wed., Feb. 16, a single load traded and the price was pegged at 81 cents/lb.

Jan. blend up $1.50-$2.00: Class IV tops Class I in all 7 MCP Orders

January’s uniform prices announced in each of the 11 Federal Milk Marketing Orders (FMMO) over the past several days were $1.50 to $2.00 higher across the board for the third consecutive month. In the 7 multiple component pricing (MCP) FMMOs, the Class IV price topped the Class I minimums (including differentials) and in some FMMOs, the Class I minimums were the lowest class price.

Statistical reports show the spreads incentivized some de-pooling of Class II and IV milk. In the Northeast FMMO for January, Class IV and Class II, combined, accounted for 40% of utilization and Class I accounted for 31%, contributing to a blend price that was $2.36 above the Class III price. PPDs were positive throughout all MCP Orders because Class III was the lowest price. (PPD = blend price minus Class III.)

January’s uniform prices moved higher for the third straight month — across the board — as follows:

FMMO 1 (Northeast) SUP $22.74 PPD +$2.36
FMMO 33 (Mideast) SUP $20.38 PPD +$0.96
FMMO 32 (Central) SUP $21.09 PPD +$0.71
FMMO 30 (UpperMW) SUP $20.59 PPD +$0.21
FMMO 126 (So. West) SUP $21.63 PPD +$1.25
FMMO 124 (Pacific NW) SUP $21.49 PPD +$1.11
FMMO 51 (California) SUP $21.25 PPD +$0.87
FMMO 5 (Appalachian) uniform price $23.72
FMMO 7 (Southeast) uniform price $22.28
FMMO 6 (Florida) uniform price $25.49
FMMO 131 (Arizona) uniform price $24.17

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