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2020 Negative PPD challenges snowballing
A dairy economist says government buying of dairy products has only been a part of factors this summer that’s led to price deductions in dairy farmer’s milk checks for the past three months.
Marin Bozic with the University of Minnesota tells Brownfield government purchasing through the Coronavirus food box program caused a rapid increase in the Class III prices after the Class I price had been set for June and also led to the largest spread between Class III and Class IV cash cheese markets on record.
Unfortunately, he says that spread in turn has caused several months of negative producer price differentials.
“Negative PPDs are very irritating to producers.”
Cheese makers have then exacerbated negative PPDs by depooling fluid milk according to Bozic making the level of deductions even greater.
At the same time, farmers haven’t been able to protect their basis with dairy insurance programs because Class III milk rallied beyond prices which trigger payments even though farm gate prices have been much lower due to the negative PPDs.
Last May, a formulation policy change was also made changing how Class I milk is priced which Bozic says was supposed to make it easier for processors to hedge their fluid milk exposure and now uses the averages of Advanced Class III and Class IV prices.
“Over the previous few months, producers would have seen their milk check higher by maybe a few dollars per hundredweight, it would have been a substantial difference.”
He says the culmination of events this year is causing the industry to call for a federal hearing examining the milk marketing system which hasn’t been done in 20 years. Bozic says milk pricing either needs to be reformed or cooperatives need to offer put options to their members to protect prices from negative PPDs.
