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August 17, 2020

Negative PPDs in June and July Combine For $1.2 Billion Pooling Shortfall

 |  By: Jim Dickrell

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

*Million Dollars

 

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