A $2.25 drop in per hundredweight (cwt.) pay price . . . that’s a substantial price reduction. That’s doubly true when the shift occurred in less than a three-month window.
That revised milk price forecast came from the Fonterra Cooperative group on May 9, 2022. Just 77 days earlier, the New Zealand-based cooperative had been projecting a $21.85 midpoint for the 2021 and 2022 calendar year with a range of $21.17 to $22.54 per cwt.
Fast-forward to the present: The world’s largest dairy product exporter is pegging a $19.91 per cwt. midpoint with a range from $19.19 to $20.03 for milk based on average component tests. If one is tracking the math, the poorest payout forecast of $21.17 on February 24, 2022, fell below the best payout projection of $20.03 on May 9, 2022.
“This is a fairly substantial decline, in my opinion,” said the University of Wisconsin’s Mark Stephenson, who helped with the conversions from the Kiwi to U.S. pay scale. “This is not completely unexpected as the consumer push back, as represented by the GDT (Global Dairy Trade) auction price is certainly a reality check on our optimism,” continued the dairy economist when speaking of the potential upside in milk prices.
When it comes to demand, China’s buying appetite waned as its two most densely populated cities, Shanghai and Beijing, went into new COVID-19 lockdowns. These two cities have a combined population larger than California, America’s most populous state. As a result, China’s buying interest at GDT fell to the lowest level since 2015. This buying interest is important for dairy demand, as China is the world’s largest dairy product importer.
For the price purists, New Zealand technically prices milk on kilograms of milk solids (kgMS). The May 9, 2022, forecast called for a $9.30 payout with a range from $9.10 to $9.50. The February 24, 2022, forecast had called for a $9.30 payout with a range from $9.30 to $9.90.
Back to the states
Stateside, Class IV prices took a major hit at the CME. Here are the prices points for the bundle of May to December contracts:
• April 1: $24.70
• May 5: $23.70
• May 11: $23.44
Again, those prices represent the same contracts at the close of three different trading sessions. Those Class IV prices reflect many of the same products sold at the GDT when one considers volume of product sold.
As for Class III, those prices had been a bit more stable on the CME . . . until the past week of trading activity:
• April 1: $23.70
• May 5: $23.70
• May 11: $23.23
Volatility remains in the marketplace. Markets ebb and flow. All that said, price mitigation on both the income and expense price of the ledger remains a must given inflation, especially when it comes to energy prices.