Editorial Comment Publisher/Editor



A Wild Ride For The Class III Price

Dick Groves
Cheese Reporter

July 10, 2020

Speaking (as we were just last week in this space) of new dairy industry price records being set during this pandemic-impacted year, the federal order Class III price has also accomplished at least one historic milestone that is worth noting. This is, as with the cash Cheddar block market, something the dairy industry has never seen before and may never see again.

First, some context is needed for putting the Class III price gyrations into historical perspective (thanks to the Upper Midwest market administrator’s office for posting tables listing the history of the Class III price back to 1961). The federal order Class III price has a pretty short history, dating only back to 2000, when federal order reforms went into effect.

Prior to that, federal orders had a Basic Formula Price, and prior to the BFP, which came into effect in 1995, there was the Minnesota-Wisconsin, or M-W, price.

Each of these prices was calculated in a different way, so they aren’t necessarily directly comparable to today’s Class III price and its wild gyrations. But it’s still interesting to look at the history of the M-W and BFP prices in light of what’s happened with the Class III price in recent months.

And there are a couple of noteworthy things that have happened with the Class III price in recent months: a very rare, but not unprecedented, decline over a period of several months, and an unprecedented jump in a single month.

Last November, the Class III price reached $20.45 per hundredweight, the first time it had been above $20.00 per hundred since November 2014. The Class III price then fell to $12.14 per hundred in May, a drop of $8.31 over a six-month period.

Then last week, USDA announced that the Class III price for the month of June was $21.04 per hundred, up an eye-opening $8.90 from May.
Looking back at the almost-60-year history of the Class III price and its predecessors, it’s worth noting that movements of $8.00 or more would have been impossible prior to 1974, for the simple reason that, prior to January of that year, the M-W price had never been above $8.00 per hundred (it reached $8.10 that month).

It is also worth remembering that there was a dairy price support program in operation until 2014. What that program was actually supposed to support was the manufacturing milk price. USDA would support that price by purchasing surplus cheese, butter and nonfat dry milk at specific prices.

So, for example, back in June of 1989, USDA announced that the support price for manufacturing grade milk was going to be reduced from $11.10 to $10.60 per hundredweight, effective July 1, 1989. That was for milk with the US national average milkfat content of 3.67 percent (last year, the US national average milkfat content was 3.92 percent). CCC purchase prices were reduced to $1.1550 per pound for Cheddar blocks, $1.1150 for barrels, $1.2050 per pound for butter and 79.0 cents per pound for nonfat dry milk.

We mention the price support program because that program was intended to provide a floor under milk prices. And so, with a floor price of $10.60 per hundred, as noted above, price movements such as the dairy industry has recently experienced would only have been possible if the M-W was over $18.60 per hundred. And since the support price was never below $9.90 per hundred, the Class III price would have had to rise to almost $18.00 per hundred to experience the type of volatility we’ve seen in recent months.

In fact, the Class III price did finally top $18.00, in April 2004, when it soared to $19.66. That was, at the time, an unprecedented jump of $5.17 from the March 2004 Class III price. And that was also the biggest one-month jump in the Class III price until last month’s increase of $8.90.

The year 2004 also saw one of the largest declines in the Class III price over a short period of time. Specifically, after reaching $19.66 per hundred in April, the Class III price increased in June to $20.58 per hundred (that was the first time ever that the Class III price topped $20.00 per hundred).

Then the price tumbled, to $14.04 per hundred in August of 2004, or $6.54, in a period of just three months.

That drop was nothing compared to what happened from the middle of 2008 until early 2009, when the Class III price plunged from $20.25 per hundred in June 2009 to $9.31 per hundred in February 2009, a drop of $10.94.

The magnitude of that drop is mighty rare in the dairy industry, for a couple of reasons. First, the Class III price doesn’t go above $20.00 per hundredweight all that often; in fact, it has topped that mark in 2004, 2007, 2009, 2011, 2012, 2013, 2014, 2019 and 2020.

And second, the Class III price hasn’t dropped below $10.00 per hundred, or even $12.00 per hundred, very often. Indeed, as dismal as milk prices have been in recent years, May’s Class III price of $12.14 per hundred was the lowest Class III price since September 2009, when it was $12.11.

Interestingly, the Class III price fell under $10.00 per hundred in five different years (2000, 2001, 2002, 2003 and 2009) in the first decade of this century, but hasn’t been under $12.00 per hundred since 2009. It also wasn’t under $10.00 per hundred in the 1990s until the final two months of 1999. And it wasn’t under $10.00 per hundred at all in the 1980s, thanks to the price support program.

The last eight months have seen record and near-record fluctuations in the Class III price, making us wonder what sort of milk price volatility lies ahead..


Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 40 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com

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