Sunday, July 5, 2009

June Class III Component Prices Announced

June 2009 component prices were announced on July 2. The prices remained almost exactly at the previous months levels.

The changes from May to June were some of the smallest ever. Below is a table of the changes. Everything except Other Solids remained almost unchanged.

The Increase is Other Solids was the most significant change. Typically, Other Solids is not a major contributor to Class III prices. To understand the change, we need to review the factors that influence the pricing of Other Solids. The pricing of Other Solids is based on the Dry Whey price as calculated by the below formula. The cost to make dry whey (referred to as the make allowance and consisting of the drying, packaging, labor and overhead to make dry whey from wet whey) is subtracted from the Dry Whey price to calculate the raw material value and then multiplied by a factor representing the moisture content.

Other Solids = (Dry Whey price – 0.1991) times 1.03

Because Dry Whey prices have been near the make allowance, a small swing can have a big impact on the other solids price. Below is a table of the prices and changes in Cheese, Butter and Dry Whey. The increase in the value of Dry Whey was only 15.4%, but the formula calculation yielded at 115.2% increase in the value of Other Solids.

This unusual pricing scenario yielded an equally unusual pie chart of milk prices, with Other Solids taking a 15% share of the milk check.

In earlier posts the underlying movers of Class III pricing were shown to be positive. However, these changes will probably not begin to have an impact until near the end of 2009. They will be followed closely in future posts to this blog.

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