Negative PPDs in June and July Combine For $1.2 Billion Pooling Shortfall
Negative Producer Price Differentials (PPDs) in June and July combined to short Federal Milk Marketing Order (FMMO) revenue sharing pools by $1.2 billion, according to analysis by the American Farm Bureau Federation (AFBF). The shortfall was $527 million in June and grew to $667 million in July. See table.
“To make matters worse, public and private risk management tools were unable to protect against these record-large milk check deductions,” says John Newton, AFBF chief economist.
“Milk processors and dairy cooperatives were very well aware of [milk] price volatility, the high likelihood of negative PPDs and the impact on June and July FMMO pool returns,” says Newton. “As a result, 4.7 billion pounds of milk was de-pooled in June and 3.3 billion pounds of milk was de-pooled in July—a combined 8.1 billion pounds of de-pooled milk over two months.
“Most, if not all, of the de-pooled milk was Class III milk used to produce cheese,” he says.
Federal Order June PPD July PPD June Pool Loss* July Pool Loss*
California -$7.91 -$9.82 $135 $192
Central -$7.51 -$8.69 $ 63 $ 72
Mideast -$7.05 -$8.02 $ 91 $ 99
Northeast -$5.38 -$5.46 $100 $128
Pacific/Northwest -$5.87 -$7.43 $ 36 $ 52
Southwest -$7.62 -$8.84 $ 61 $ 77
Upper Midwest -$3.81 -$4.86 $ 41 $ 49
What’s the fix? While a number of solutions are being discussed, there is no clear answer because each solution comes with a downside—and perhaps unintended consequences not now foreseen. You can read more of Newton’s analysis here: https://www.fb.org/market-intel/de-pooling-and-record-large-negative-ppds-continue-into-july