Chart I - Pie of Milk Volume by Milk Class - 2916 |
The current and proposed formulas were analyzed for four different time periods. They are as follows:
- The18 years from 2000 to 2017
- The last ten years
- The last five years
- The current year of 2017
Other parameters were measured as well, such as frequency of use of Class III or Class IV in the current formulas, and trends in the frequency, impact of the proposed formula change on monthly pricing.
AVERAGE PRICE
Table I compares the Class I base price averages for the time periods listed above. In each comparison, the average price is higher by the proposed formula than by the current formula. The changes for just 2017 were up by $.11/cwt., but for any longer period, the change was insignificant. From a producer's point of view, based on Table I, there is no reason to resist the change to the proposed formula.
Table I - Change in Average Class I Base Skim Price |
PRICE VOLATILITY
Table II compares the impact of volatility in Class I prices when calculated by the current and proposed formulas. In each case, the volatility is less with the proposed formulas than with the current formulas. From a producer's point of view, based on Table II, there is no reason to resist the change to the proposed formula.
Table II - Volatility of Class I Base Skim Price |
HIGHER VS. LOWER MONTHLY PRICES FROM NEW FORMULA
Table III compares the number of months that the proposed formula was higher or lower than the current formula. Over the last 18 years (216 months), in 137 months, the price was higher, and in 79 months, the price was lower over the last 18 years. Similarly, over the last ten years, the last five years, and 2017, the number of positive months outweighs the number of lower priced months. From a producer's point of view, based on Table III, there is no reason to resist the change to the proposed formula.
Table III - Number of Months Price is Higher or Lower |
FREQUENCY OF CLASS III VS. CLASS IV USAGE IN CURRENT FORMULA
Table IV shows the months and percents of using Class III and Class IV prices over the trial years. The mix seems consistent except when viewed for a single year. If the demand for butter creates too much skimmed milk, the skimmed milk may only find a home as nonfat dry milk in the international markets. The excess could keep Class IV prices low. In that case, the inclusion of a low Class IV price in the Class I formula could make Class I price lower. More on this below.
Table IV - Months that Class III and IV were used in Current Class I Formula |
PRICE CHANGE BY MONTH WITH PROPOSED FORMULA VS. CURRENT FORMULA
Table V shows the largest variations, both positive and negative that would occur via the change in formula. If calculated by the new proposed formula, the largest monthly increase compared to the current formula was $.72/cwt. However, the largest monthly decrease compared to the current formula was $2.53/cwt. Because the change in the average price does not significantly change and because there are more positive months than negative months, it does make sense that the negative months have to change by more than the positive months change.
Table V - Largest Monthly Changes in the Class I Base Price |
Chart II - Change is Price with Proposed Formula vs. Current Formula |
SUMMARY
In summary, there appears to be very little reason for a producer to resist the proposed change in the Class I formula. However, to does nothing to benefit producers who do not hedge and very few producers to hedge. A few items, such as long-term depressed prices for Class IV milk could make the proposed formula less attractive. However, history does not currently show any long-term trend of low Class IV prices.
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