Tuesday, May 19, 2009

Pacific Northwest Order #124 PPD

The Pacific Northwest Federal Order (FO) #124 is very different from the Northeast and Upper Midwest FOs discussed in prior posts to this blog. It has a very low PPD - averaging just $.14 over the course of the last 4+ years.

The Pacific Northwest is a much smaller order than many of the other orders. It's total reported milk is only 27% of the Upper Midwest Order. It processes an extremely large amount of Class IV milk (Butter and Nonfat Dry Milk); nearly three times as much as the Upper Midwest Order which in total is four times its size. Because Class IV milk is the lowest paid, the high percentage of Class IV milk drags down the average milk price to nearly the level of Class III milk. Hence it has a very small PPD, just $.14.

This FO has a very significant amount of depooling when the Producer Price Differential (PPD) goes negative, and because it is always close to "0", it's easy for the PPD to go negative. This has created a lot of volatility in the FO.

As done in the previous posts on FOs, the PPD chart is shown directly above the volume by milk class to illustrate the dramatic swings in volume (mostly Class III) when the PPD becomes negative.

Overall, the Pacific Northwest Order is not growing at all. In fact, it is slightly shrinking.
The chart below shows the volume of Class III milk by month. There are huge swings in volume due to depooling. In spite of this, the volume of milk going to cheese has shown a slight increase over the last 4+ years.

The Class IV milk has taken a significant dive in volume while Class I fluid milk, the green line below, has actually increased. This may be the only example of fluid milk increasing in volume.

In a later post to this blog, the various FOs will be compared. Dairy profitability can vary significantly depending on where the dairy is located. Is it fair?

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