Large Negative PPDs on Milk
FMMO Pool Shortfall, Announced PPDs and De-Pooled Milk
In multiple component pricing orders, proceeds from the pool are based on the difference between the classified value of the milk and the component value of the milk. When the component value of the milk exceeds the classified value of the milk, the proceeds from the pool are negative and result in a negative producer price differential. More simply, when the Class III price exceeds the Class I price, the PPD is expected to be negative.
Data from USDA’s Agricultural Marketing Service revealed that in the seven multiple component pricing orders, the total difference between the classified value of milk pooled on the FMMO and the component value of milk was -$528 million dollars – meaning the component value of milk exceeded the classified value by more than half a billion dollars. The difference was the largest in California at -$135 million, followed by the Pacific Northwest at -$100 million. The magnitude of the difference depends on the weighted average component levels in the market, the volume of milk pooled on the FMMO and the utilization of milk on the FMMO. Figure 1 highlights the difference between the component and the classified value of milk by FMMO.