Why are US milk producer prices still so high? In a word - EXPORTS!

By John Geuss

- Last updated on GMT

Why are US milk producer prices still so high? In a word - EXPORTS!

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Record high US milk producer prices continued into March on the back of booming international demand for American skim milk power (SMP), non-fat dry milk (NDM), whole milk powder (WMP) and butterfat, reports's US commodities expert John Geuss.

The March producer milk price announcements continued the recent string of new record high prices. 

Most of the producer milk pricing in the US is based on milk for hard cheese manufacturing (Class III milk) or milk for nonfat dry milk (NDM) manufacturing (Class IV milk). 

In turn, the milk for hard cheese manufacturing is based primarily on the wholesale price of cheese and the milk for NDM is based primarily on the wholesale price of NDM. Drinking milk (Class I) pricing is based on the higher of these two.

In March, NDM hit a record all time high of $2.09 per pound (lb), which drove the Class IV milk price to a record $23.66 per hundredweight (cwt). The record price for Class III milk is $23.35 and the March price was $23.33 per cwt, a near record. 

Class II milk is used for manufacturing soft processed dairy products like yogurt. It is priced based on the Class IV price plus a premium. Therefore, it also hit a record high of $24.22 per cwt.

Milk for drinking (Class I milk) is paid on the advanced system and uses the higher of the Class III or IV prices. Because the Class IV is currently higher (and a record price), the April Class I price was a record $23.65 per cwt.

In summary, every class of milk in the US payment system was at a new record high except for Class III which was $0.02 per cwt off the record price.

Prices for 2014 are displayed in the table below with all time record highs shown in red.

chart 1

Because of the importance of the Class III and Class IV pricing, the Chicago Mercantile Exchange (CME) provides a market for future pricing. 

This is used primarily for milk processors to hedge their pricing and manage their milk costs.

As of April 7, this market indicates a new record high for April of $23.93 per cwt for Class III milk and a lower but still excellent Class IV price of $23.46 per cwt. 

What is driving these high prices?

john g 2
US dairy commodities blogger, John Geuss.

In a word – EXPORTS. 

For the first two months of 2014, cheese exports are up 45% over the prior year. NDM/SMP exports are up 12%, WMP exports are up 236% off a small base, and butterfat exports are up 125%.

John Geuss (left) is the editor of US dairy commodities blog, MilkPrice.

For John's detailed month-by-month examination of American dairy commodity movements, visit MilkPrice.

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