Class IV Reaches Record Price

March 2014 Class and Components were announced on April 2.  Most prices were new all time records.  Class III milk remained near record highs (Class III was $23.33/cwt. vs. a record of $23.35/cwt.) and the other milk classes all reached new record highs.  The most important record setter was Class IV milk at $23.66/cwt., driven by the record price of NDM at $2.09/lb.

Because the Class II is based on Class IV plus a premium, Class II milk also set a record at $24.22/cwt.  Class I is paid on the advanced system and is currently a record high for April of $23.65/cwt.  The Class IV record price kept the Class IV above the Class III price, which makes Class IV the basis for the Class I milk paid on the advanced system.  See the February 25, 2014 post to this blog for an explanation.

The only negative elements in the chart below were small and centered around a slight drop in the NASS price of cheddar cheese.  The price dropped by less than 1%, only slightly impacting the Class III price.  The price of milk protein was negatively impacted by the lower price of cheese and the higher price of butterfat (see the August 8, 2010 post to this blog for an explanation of this relationship.)

Protein was down slightly and butterfat and other solids were both up slightly.  These component prices offset to keep the Class III price almost constant.  Protein at $4.52/lb. was well above it's trend line, while butterfat at $2.05/lb., and other solids at $.47/'lb. were just slightly above their trend lines.  Milk protein is growing in importance as new products and consumption trends emphasize protein over fat.

The composition of the Class III price remained nearly identical to the prior month with milk protein contributing 58% of the revenue.

Milk protein is obviously the most important component for producers to emphasize.

INVENTORIES

Inventories of the key commodities driving milk pricing remained low at the end of February.  March inventories are not available, so the data below are really the drivers of February pricing.  Lower inventories drive higher prices.

Cheese inventories were lower than the prior month at the end of February.  Typically, they increase in February.

While the low cheese inventories were primarily driven by strong cheese exports, the relatively low cheese production also contributed to the lower inventories.  February is a short month and therefore is typically the lowest production month of the year, but February 2014 was especially low.  

Dry whey inventories were well below the prior year levels keeping dry whey prices high. The price of dry whey is the basis for other solids pricing.

NDM inventories remain tight, driven by the high exports.  January export data indicated a softening in NDM exports, so the soon to be released February export data is very important.  The price of NDM is the basis for the Class IV skim milk price and is a very important factor in the current high milk prices.

WHERE ARE MILK PRICES GOING?

The current futures price for Class III milk indicates a new record price will be set in April and Class IV will remain high, but drop a little.  This should provide an excellent revenue base for U.S. Dairy producers.  Exports are key to this and when export data is released it will be analyzed in the next post to this blog.