
Futures prices can change quickly, but this post will review how the current futures for 2021 compare to the three prior years. All Federal Milk Marking Order (FMMO) pricing data used in this post is now complete for 2020.
The futures information below will cover the same areas as in the prior post, covering the four commodities used to price producer milk, cheese, butter, Nonfat Dry Milk (NDM), and dry whey. It will also examine 2021 futures pricing for Class III and Class IV milk.
One of the big issues in 2020 was the huge spread between Class III and Class IV milk prices. The new pricing formulas for Class I skim milk have made the price of Class IV skim milk extremely important because the price of Class IV milk is now always in the Class I milk price formula. It was previously in the Class I formula only when the Class IV skim milk price was higher than the Class III skim milk price. The spread between Class III and Class IV milk prices in 2019 was one of the five factors discussed in November 22, 2020 post to this blog for causing negative PPDs.
The four commodities used to price producer milk will be reviewed first.
Chart I below shows the futures prices for cheese in 2021. While January’s price is low, overall, the 2021 pricing is positive. On the average, the cheese price is $1.85 per pound, slightly below 2020 but higher than 2018 and 2019. This will make the Class III milk price and the price of milk protein relatively high. For details on the relationship between the cheese price and the Class III milk/milk protein prices, see this post.
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Chart I – Futures Cheese Prices |
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Chart II – Futures Butter Prices |
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Chart III – Futures NDM Prices |
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Chart IV – Futures Dry Whey Prices |
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Chart V – Futures Class III Milk Prices |
Chart VI shows the futures prices of Class IV milk. Because the Class IV skim milk price is based entirely on the price of NDM, Charts II above and Chart VI below have a very similar pattern. The average 2021 price of $15.64 per cwt. of Class IV milk is well above the 2020 price. The 2020 price of $13.49 per cwt. is well below the futures prices for 2021. The low 2020 price had a severe financial impact of producer milk prices. The reason for this severe financial impact will be covered in Chart VII and VIII below.
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Chart VI – Futures Class IV Milk Prices |
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Chart VII – Futures Class III and Class IV Milk Prices |
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Chart VIII – Spread Between Class III and Class IV Milk Prices |
Based on the current futures prices, 2021 should be a good year for producer milk prices and will have an increasing positive impact as the year progresses. The price for milk protein will be consistently good and butterfat prices will be increasingly good. A producer that concentrates on component levels in his milk will have a very good year financially.