Where is Class I Milk Crashing?

In the prior post, the decline in Class I milk was examined for the U.S. in total.  That post has raised questions as to where the impact is greatest.   This post will examine the decline in each of the ten Federal Milk Marking Orders (FMMOs).  In summary, all FMMOs are seeing a decline in the amount of Class I milk.  Some are seeing steady declines while other are seeing accelerating declines.  The charts below will examine the FMMOs with the fastest accelerating declines compared to those with a slower decline.   The amount of Class I milk in each FMMO is always based on the amount processed.  It may not be representative of consumption in that area.  Because Class I milk cannot be de-pooled, the numbers represent an accurate portrayal of the declines.  In all graphs the same mathematical trend-line has been applied.

The table below shows the January to September YTD decline for each of the FMMOs.  As can be seen, all FMMOs are showing declines in 2018.

Table I - Class I Decline by FMMO vs. Prior Year

The three with the largest declines are the Upper Midwest, the Northwest, and the Mideast FMMOs.  The declines in these three are significantly accelerating.   In terms of size, they represent 28% of the total Class I milk.

Chart I - Upper Midwest FMMO Class I Percent Decline vs. Prior Year

Chart II - Upper Midwest FMMO Class I Percent Decline vs. Prior Year

Chart III - Northwest FMMO Class I Percent Decline vs. Prior Year

At the other end of the scale is the Southeast FMMO.  While the Southeast has a steadily declining Class I volume, the decline is not significantly accelerating. That is a good as it gets.  Every other FMMO does have an accelerating decline in volume, but not as rapid decline as the Upper Midwest, the Mideast and the Northeast.

Chart IV - Southeast FMMO Class I Percent Decline vs. Prior Year

What does this mean financially to the producers in these FMMO?  The faster the decline, the faster the average (Uniform) price of milk in the FMMO will drop. What this means in the Upper Midwest is that the Class I impact of keeping the Producer Price Differential (PPD) positive will diminish.  The frequency of a negative PPD will increase.  Typically many of the producers will de-pool when the PPD goes negative.  Much of the milk in the Upper Midwest is already being de-pooled.  With the declining amount of higher priced Class I milk, de-pooling of Class II, III, and IV milk will expand.  Class I cannot be de-pooled.

The acceleration of the decline in drinking milk has been reviewed at least three times in this blog; May 28, 2018,  June 27, 2018, and October 26, 2018.  There is not doubt that the decline is accelerating.

Chart V below expresses the change in a slightly different way.  It shows that actual decline in millions of pounds for the Upper Midwest.  In January of 2014, 326 million pounds of milk were processed as Class I.  In the most recent month, September 2018, just 224 pounds were processed as Class I, a 1/3 reduction.

Chart V - Million Pounds of Class I Milk Processed in the Upper Midwest

There was a recent article published to show that the growth in Class III milk for cheese has more than offset the loss of fluid milk.  The author used data from 1975 through 2017 based on per capita consumption.  While his charts are correct, during this time population growth has slowed, the growth rate of cheese has declined from 6% in 1975 to 2% in 2017, and the decline in milk consumption has accelerated.   The current decline in Class I milk is a game changer for the U.S. dairy industry and will impact the entire industry.  The facts must be accepted so proper planning can be done.