Milk markets may finally be returning to prepandemic pricing patterns as producer price differentials (PPDs) reappeared on the positive side of the ledger in July’s milk checks. The highest differentials were found in the Northeast, which posted a $1.57 PPD, and the Southwest, which notched $1.16. The remaining federal orders ranged from 25 to 28 cents in the Upper Midwest and Pacific Northwest to 76 cents in the Mideast.

Just 13 months ago, negative PPDs exploded onto the milk pricing scene. Those negative calculations were set in motion by historic swings in pandemic-driven milk markets. Largely, Class III prices outpaced Class IV and set markets into chaos. The situation reared its ugly head throughout the federal order system and involved markets with multiple component pricing structures.

In June 2020, California dairy producers were the hardest hit with a negative PPD of $7.91. However, no one was spared as drawdowns were between $3.81 and $7.62 in the remaining seven orders as detailed in the article, “Negative PPDs ranged from $3.81 to $7.91

Many converging factors

“Let’s go to the source of the negative PPDs as more of an issue here,” suggested Tom Wegner, director of governance and leader development at Land O’Lakes in an April 7, 2021, episode of DairyLivestream.

“The great difference between Classes III and IV really tumbled a lot of stuff. Advance pricing has something to do with it, the 74-cent mover fixture has something to do with it, and so does depooling,” he said, noting the 74-cent mover impacts Class I pricing in federal orders.

To learn more about those market forces, read “Can we get to the source of the PPD problem?

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(c) Hoard's Dairyman Intel 2021
August 26, 2021
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