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Record milk check deductions again for July

An ag economist says dairy farmers are expected to have another milk check deduction in July because of high cheese prices.

American Farm Bureau’s Michael Nepveux tells Brownfield he doesn’t anticipate a Dairy Margin Coverage payment for July following higher milk prices, but negative producer price differentials are another story.

“We do know for a fact that there have been massive negative PPDs for June and July.”

Analysis by American Farm Bureau finds during June and July, the difference between the classified value of milk and the component value of milk, how PPDs are calculated, across the seven component pricing orders was $1.2 billion. 

California had the lowest negative PPD during July at nearly -$10 per hundredweight, followed by the Southwest, Central and Mideast regions which were in the $8 range.  The Upper Midwest has the smallest deduction of $4.86 because of the volume of Class III milk that stayed in the region. 

USDA is currently forecasting margins for the remainder of 2020 to remain above $9.50 but Nepveux speculates damage caused by derecho might affect feed prices more than first projected.

“If it was substantial enough damage, then that would absolutely drive up the cost of feed.”

Nepveux says the milk pricing system is very complex and uncertainty surrounding foodservice demand could lead to more extreme volatility this year.