Class III milk futures drop despite USDA price forecast

Class III milk futures have been dropping in trade on the Chicago Mercantile Exchange. This is despite a prediction last week by the U.S. Department of Agriculture (USDA) of higher milk prices for 2012 than it had been previously forecasting.

On Wednesday of this week, the price declines for nearby months approached the daily limit for a trading session.

The market day on Wednesday also included spot market price drops for Cheddar cheese and AA butter, a lower than the standing price on an unfilled bid for non-fat dry milk, and a sharp drop in futures prices for dry whey, topped by 4 cent per pound cutbacks for April, June and August of this year.

The USDA had based its higher milk price projections on anticipated higher prices for dry whey and non-fat dry milk during 2012.

On Wednesday, however, Class III milk futures plunged by more than 60 cents per hundred for March and April. Also, Cheddar blocks lost 4 cents after three carload sales and one uncovered offer to sell, Cheddar barrels were down by 1.25 cents after one carload sale and one uncovered offer, AA butter was off by 1.75 cents as a result of an uncovered offer to sell two carloads, and a bid of $1.42 per pound was placed for Grade A non-fat dry milk compared to the standing spot market prices of $1.45 for Grade A and $1.48 for Grade Extra.

At the end of the trading day on Wednesday, the January Class III milk futures stood unchanged at $17.08 per hundred, but February through June of 2012 had slipped below $17, while the remaining months of 2012 were in the low $17s per hundred.

Per pound closing prices in the spot market for dairy commodities on Wednesday were $1.5550 for Cheddar cheese blocks, $1.5250 for Cheddar barrels, and $1.5775 for AA butter. Dry whey futures were still above 68 cents per pound for January and February, but they have dipped sharply to below 50 cents per pound for July through December of 2012, and then to the high 30s per pound for all months in 2013. For the first time in several years, the producer price differential for milk pooled during December in Federal Milk Marketing Order 30 was a negative number. That negative was 6 cents per hundred for the Chicago base zone and as high as a negative 26 cents for the most distant geographical milk receiving plants.

Of the nearly 2.517 billion pounds of milk pooled in the marketing order for the month, the usage was 75.6 percent in Class III (cheese), 14.7 percent in Class I (fluid milk), 5.6 percent in Class II (soft dairy products), and 4.1 percent in Class IV (butter and milk powder).

The pooled milk had averages of 3.86 percent butterfat, 3.15 percent protein, and 5.75 percent other solids.