April’s milk price crash hides a PPD paradox. Class III surges as depooling games intensify. New FMMO rules land June 1 – ready?
EXECUTIVE SUMMARY: April 2025 saw FMMO milk prices decline across most classes, with Class III as the lone exception (+602M lbs pooled). Paradoxically, Producer Price Differentials (PPDs) rose due to strategic Class IV depooling, exposing systemic stresses. Protein values plummeted 30¢/lb, squeezing margins for component-focused herds, while butterfat held steady. Impending June 1 regulatory changes – including reverting to the “higher-of” Class I formula – threaten to erase temporary pricing cushions. May projections show continued declines but hint at a Class III/IV price reversal, potentially flipping depooling incentives. Dairy producers face compounding challenges from volatile markets and transformative policy shifts.
KEY TAKEAWAYS:
- Class III dominance: 49.3% of April’s FMMO pool, signaling cheese market resilience amid broader price slides
- Depooling whiplash: $0.44 Class IV premium drove April exits; May’s projected $0.38 Class III lead may reverse flows
- Regulatory reset: June 1 formula change could slash Class I prices $0.30-$0.33/cwt vs current calculations
- Protein crisis: 14% monthly drop in protein value upends feed economics for high-component herds
- PPD paradox: Increased differentials despite falling prices reveal handler strategies distorting pool values
The downward slide in Federal Milk Marketing Order (FMMO) uniform milk prices accelerated in April 2025, squeezing dairy farm margins nationwide. Yet amid this bearish market, a puzzling countertrend emerged – base Producer Price Differentials (PPDs) increased across the seven applicable FMMOs. This seemingly contradictory movement reveals deeper structural stresses in the milk marketing system, much like when a cow’s dropping milk production masks an underlying metabolic challenge.
When milk prices trend downward, like in April, the impact ripples through every freestall barn and milking parlor across America. But there’s more happening beneath the surface than just headline numbers. Like reading a Holstein’s body condition score, understanding the full story means looking beyond the obvious signs to assess what’s happening with milk markets.
APRIL PRICE BREAKDOWN: WHEN ALL COMPONENTS HEAD SOUTH
April’s milk price statistics read like a farm financial drought report. USDA Agricultural Marketing Service data shows that the Class I base price plummeted $1.45 to $19.57 per hundredweight (cwt). However, it still maintains a modest $0.39 advantage over April 2024 levels – a small consolation when feed bills come due. With zone differentials applied, April’s Class I prices averaged about $22.39 across all FMMOs, ranging from $24.97 in Florida to $21.37 in the Upper Midwest.
These price declines hit just as many operations make planting decisions and spring input purchases. When your milk check drops while your input costs stay high, something’s got to give – usually it’s your sleep.
Manufacturing class prices showed similar weakness. The USDA’s Final Class Prices report confirms that Class II milk (used for soft products like cottage cheese and ice cream) fell 90 cents to $19.22 per cwt in April, at $2.01 below April 2024. Class III milk (cheese) dropped $1.14 to $17.48 per cwt, though it maintained a $1.98 premium over last year’s prices. Class IV milk (butter and powder) decreased by a more modest 29 cents to $17.92 per cwt but remained $2.19 lower than April 2024.
THE PPD HEAD-SCRATCHER: WHEN LOWER PRICES CREATE HIGHER DIFFERENTIALS
April’s PPD behavior confounded even seasoned milk marketers. Typically, when class prices fall, PPDs follow suit – it’s as reliable as cows heading to the feed bunk after milking. But April bucked that trend with PPDs actually increasing across all Federal Orders.
This peculiar PPD rise amid falling prices stems from the strategic depooling of Class IV milk. With the April Class IV price ($17.92) exceeding the Class III price ($17.48) by 44 cents, handlers had a financial incentive to remove Class IV milk from FMMO pools, like how you might separate your high-producing string from your hospital pen for different management strategies.
“The depooling phenomenon is essentially handlers cherry-picking, which milk participates in revenue sharing,” explains Dr. Mark Stephens, dairy economist at Cornell University. “It’s comparable to taking your premium quality hay and selling it separately rather than including it in a mixed lot – you capture more value keeping it out of the blend.”
This depooling altered the mathematical formula determining PPDs, creating our counterintuitive result. It’s a textbook example of how FMMO pool mechanics can produce outcomes that defy market logic, much like how increasing concentrate sometimes counterintuitively lowers butterfat tests when it causes subclinical acidosis.
COMPONENT VALUES: WHEN PROTEIN TANKS BUT BUTTERFAT HOLDS
Digging into the component values reveals another crucial story for producers managing dairy nutrition programs and breeding decisions. According to USDA data, April butterfat values remained relatively stable at $2.64 per pound, edging up just 2 cents from March, showing the resilience of cream markets. Protein, however, took a substantial hit, falling 30 cents to $2.16 per pound – a dramatic slide for the cheese yield component.
Non-fat and other solids declined by 5 cents each, settling at 99 cents and 31 cents per pound, respectively.
When protein values drop like this, it challenges the economics of feeding strategies to maximize milk protein. The classic ‘feeding for components’ approach needs constant recalibration when component values fluctuate this dramatically.
These shifting component values directly impact milk checks through component pricing formulas. FMMOs reporting preliminary data showed April’s average component tests resulted in 99 cents to $1.18 per cwt lower than March, a substantial hit to the mailbox price. Adding salt to the wound, somatic cell counts (SCCs) increased in the few FMMOs reporting monthly averages, potentially triggering SCC premium losses for some producers who slipped over their cooperative’s threshold limits.
Here’s a question worth pondering: Are your current feed additives and bypass proteins still paying off with protein valued at $2.16 per pound? Or are you throwing good money after bad? For producers feeding expensive protein supplements like bypass soybean meal or amino acid additives, the economic return on those inputs suddenly looks less favorable, like when drought pushes up hay prices while milk prices fall.
DRAMATIC SHIFTS IN MILK POOLING: THE CLASS III FLOOD
April witnessed a massive reshuffling in FMMO utilization that would make even the most strategic breeding program look simple by comparison. The total volume pooled dropped by 285 million pounds from March to 14.52 billion in April. But the real story lies in how that milk was classified.
Class III milk was the only category to gain volume, surging by an impressive 602 million pounds to claim 49.3% of the total FMMO pool. Consider that nearly half of all federally regulated milk was designated Class III in April, continuing the upward pooling trend apparent since February. Meanwhile, Class I dropped 43 million pounds, Class II fell 136 million pounds, and Class IV plummeted by a staggering 684 million pounds.
This dramatic shift in milk utilization demonstrates how quickly the FMMO system can rebalance when market signals change. The pooling data illustrates how significantly processors and handlers can alter the composition of the federal order system within a single month.
THE DEPOOLING STRATEGY: PLAYING THE SPREAD
In April, the 44-cent spread between Class IV ($17.92) and Class III ($17.48) created textbook conditions for Class IV depooling. The economic calculus becomes obvious when handlers forecast that their Class IV milk value might exceed what they’d receive through the pool. By keeping Class IV milk outside the pool, they capture its full market value rather than seeing it diluted in the blend price.
Depooling isn’t a new phenomenon. It’s been a feature of the FMMO system since its inception, with the justification that it allows handlers flexibility to respond to market signals. The regulatory framework permits this behavior because it allows the system to adapt to changing market conditions and prevents artificial constraints on milk movements.
“The original rationale behind allowing depooling was to prevent disorderly marketing,” explains Dr. Andrew Novakovic, Professor Emeritus of Agricultural Economics at Cornell University. “The intent was to create a voluntary system that processors would want to participate in rather than a mandatory system that might create inefficient milk movements or processing decisions.”
However, a market mechanism intended to increase efficiency has evolved into a sophisticated financial strategy that can significantly impact producer milk checks. While technically permitted under FMMO regulations, the scale we’re seeing now, with 684 million pounds of Class IV milk exiting the pool in a month, raises fundamental questions about the system’s fairness and purpose.
Is this system working for you, the producer, or mainly for the processors and handlers who manipulate it? The depooling game may be perfectly legal under current rules, but it introduces tremendous volatility into the pricing system that producers rely on for monthly cash flow and financial planning. When 684 million pounds of Class IV milk suddenly exit the pool, how can any farmer accurately budget based on announced FMMO prices?
THE REGULATORY RESET: JUNE 1 CHANGES LOOM LIKE STORM CLOUDS
Dairy producers should brace for significant changes coming on June 1, 2025, when USDA’s finalized amendments to the FMMOs take effect – changes that will impact milk checks as surely as switching from 2X to 3X milking affects production patterns.
According to Hoard’s Dairyman, the most immediate impact for many producers will be reversing the Class I mover formula from the current “average-of-plus-74-cents” to the traditional “higher-of” calculation. This seemingly technical adjustment carries real financial weight in the bulk tank.
This formula difference provided a 33-cent boost to the Class I price for April compared to what the “higher-of” formula would have generated. For May, that advantage is projected to be 31 cents. While three dimes per hundredweight might seem insignificant in isolation, they add up quickly across millions of pounds of milk – the difference between making minimum debt service or falling short for many operations already running tight margins.
Beyond the Class I formula change, the June 1 revisions include several substantial modifications to the FMMO system as outlined by the USDA:
- Updated milk composition factors (3.3% true protein, 6.0% other solids, 9.3% nonfat solids)
- Removal of 500-pound barrel cheddar cheese prices from protein price formulas
- Updated make allowances (manufacturing costs) for Class III and IV products, increasing to $0.2519 for cheese, $0.2668 for dry whey, $0.2272 for butter, and $0.2393 for nonfat dry milk
- Revised Class I differential values across the FMMO geography
- Updated butterfat recovery factor to 91%
These represent the most substantial FMMO reforms since the Federal Order consolidation in 2000, arriving while producers are already facing significant market headwinds, like trying to adjust their nutrition program during a feed shortage.
LONG-TERM RIPPLES: WHAT THESE FMMO CHANGES COULD MEAN BEYOND YOUR NEXT MILK CHECK
While the immediate price impacts of the June 1 changes are concerning enough, the longer-term effects could reshape regional dairy economies and processor competition. The updated allowances, the processing costs recognized in milk pricing formulas, will directly impact the value returned to producers for their milk components.
Higher allowances mean less of the final product value flows back to farmers and more stays with processors. According to industry stakeholders who supported these changes, the justification is that manufacturing costs have increased substantially since the last update in 2008, and the formulas needed to reflect current economic reality.
“This final plan will provide a firmer footing and fairer milk pricing, which will help the dairy industry thrive for years to come,” said National Milk Producers Federation president and CEO Gregg Doud in a statement following the USDA’s announcement.
Not everyone agrees with this assessment. Critics argue that higher allowances primarily benefit processors at producers’ expense, particularly during periods of price weakness like we’re experiencing now. While stable processing capacity is essential for a functioning dairy economy, the question remains whether the burden of ensuring stability should fall so heavily on producers.
The update to milk composition factors (higher protein, other solids, and nonfat solids) theoretically recognizes improvements in genetics and management that have increased these components in the national herd. However, this change won’t take effect until December 1, 2025, to “minimize complicating risk management options,” according to the USDA.
Has anyone clearly explained how these changes will affect YOUR operation specifically? If not, it’s time to start asking hard questions of your cooperative, milk handler, or market analyst. The dairy industry has a troubling habit of implementing complex regulatory changes, leaving individual farmers to figure out the consequences independently.
MAY OUTLOOK: MORE PRESSURE ON THE PIPELINE
The outlook for May doesn’t offer much relief from the downward pressure, with uniform prices expected to decline further based on announced advanced prices. USDA’s Dairy Program Market Information Branch (ADV-0525) states that the May Class I base price will drop another $1.20 to $18.37 per cwt, sitting 9 cents below May 2024 levels. With zone differentials, May’s Class I prices will average approximately $21.19 across all FMMOs.
The current Class I mover formula will again provide a modest cushion in May, adding about 31 cents compared to what the “higher-of” calculation would have yielded. However, this will be the last month producers benefit from this formula before the June 1 regulatory changes, like the final cutting of high-quality alfalfa before drought stress sets in.
Looking at futures markets, a potentially significant shift may be brewing in the relationship between manufacturing classes. As of May 13 trading, CME Class III milk futures for May closed at .43 per cwt – up .38 from April’s actual price. Meanwhile, May Class IV futures closed at just $18.05, a mere 4 cents above April. If these prices materialize, the Class III-IV relationship will flip, with Class III exceeding Class IV by 38 cents.
A POTENTIAL DEPOOLING REVERSAL
This potential reversal in class price relationships could trigger a corresponding flip in depooling incentives. After seeing substantial Class IV depooling in April, we might witness Class III depooling in May if futures prices hold – a complete reversal of milk flow patterns in 30 days.
“The rapid changes in pooling incentives are like trying to manage grazing rotations during unpredictable spring weather,” explains Pennsylvania producer Jennifer Miller. “Just when you think you understand the pattern, everything changes and you’re back to square one with your planning.”
Such rapid shifts highlight producers’ volatility in today’s dairy markets and the complex, sometimes unpredictable nature of FMMO pooling dynamics. For producers receiving PPDs on their milk checks, this volatility creates budgeting challenges comparable to predicting feed costs during global market disruptions.
NAVIGATING THE ROAD AHEAD: SURVIVAL STRATEGIES FOR DAIRY PRODUCERS
For dairy farmers, these persistent price declines and regulatory changes demand management responses as strategic as breeding program adjustments during genetic evaluations updates. First and foremost, understand exactly how your milk check is calculated, particularly how PPDs and “market adjustment factors” are applied by your handler. These can vary significantly, and these details matter more than ever in times of market stress.
When did you last sit down with your milk statement and truly understand every line item? If you’re like many producers, you focus on the bottom line and gloss over the complicated formulas determining your pay. That approach might have worked in more stable times, but today’s volatile market demands greater scrutiny.
RISK MANAGEMENT TOOLS: BEYOND BASIC COVERAGE
Consider implementing or revisiting your risk management toolkit. With milk prices under significant pressure, here’s a deeper look at your options:
Dairy Margin Coverage (DMC) remains the foundation of many producers’ risk management strategies. For 2025, participation has been strong, with many producers opting for the maximum $9.50/cwt coverage level on their first 5 million pounds of production history. The program’s value proposition is straightforward – for producers with less than 5 million pounds of production history, the premium cost of $0.15/cwt for $9.50 coverage offers tremendous leverage when margins collapse.
For example, a farm with 200 cows producing 24,000 pounds annually would have a production history of 4.8 million pounds. Their annual premium would be approximately $7,200 at the maximum coverage level. If milk-feed margins drop below $9.50 for three months, the potential indemnity could easily exceed $35,000-40,000, providing crucial cash flow during market downturns.
Dairy Revenue Protection (DRP) offers a more customizable approach, allowing producers to protect revenue rather than just margins. The premium costs vary significantly based on coverage level, class pricing option (Class III, Class IV, or component pricing), and market conditions at the time of purchase. While typically more expensive than DMC, DRP allows coverage of larger volumes and can be tailored to your specific milk utilization and component profile.
CME Futures and Options provide the most direct hedging mechanism but require more sophisticated management and potentially higher cash flow requirements for margin calls. With nearby months showing strength in Class III relative to Class IV, the current market conditions present unique hedging opportunities for producers who understand the spread relationships between these classes.
Forward Contracting through your cooperative often provides the most straightforward approach, though typically at prices slightly below what might be achieved through direct hedging. The advantage is simplicity and predictability, with no margin calls or option premiums to manage.
The most effective risk management approach usually combines multiple tools, creating layers of protection appropriate to your farm’s financial situation, milk volume, and risk tolerance. Work with a specialized advisor who understands dairy markets and your operation’s specific needs to develop a tailored strategy.
Watch component values closely – with protein taking a substantial hit in April, feeding strategies that optimize component production might need adjustment. Consulting with your nutritionist about cost-effective ways to maintain components while controlling input costs could preserve critical margins.
“Smart producers are focusing on component efficiency right now,” advises veterinarian Dr. Robert Thompson. “Just like you’d adjust your vaccination protocol based on herd health challenges, you must adapt your feeding program to changing milk component values. It might mean backing off some expensive protein additives when the protein price is depressed, similar to how you’d dial back heifer AI semen use when replacement values drop.”
Finally, prepare for the June 1 regulatory changes by understanding how the return to the “higher-of” Class I formula will affect your marketing situation. This transition will likely mean lower fluid milk prices in the near term, especially if the current price relationships continue, requiring budget adjustments like planning for seasonal milk price fluctuations.
THE BOTTOM LINE: MARKET REALITY CHECK
The April FMMO data sends a clear message – dairy markets remain under significant pressure with few signs of immediate relief. The combination of falling prices, strategic depooling, and impending regulatory changes creates a challenging environment for producers nationwide – a perfect storm comparable to facing drought, high input costs, and labor shortages simultaneously.
However, it’s worth noting that Class III prices remain significantly above year-ago levels, suggesting some underlying strength in the cheese market that could provide a foundation for eventual recovery. For now, dairy producers should remain vigilant, leverage available risk management tools, and prepare for continued volatility through this transitional period in FMMO regulations.
It’s time to ask yourself: Are you preparing for this storm or hoping it passes you? The depooling games and regulatory changes we’re seeing aren’t temporary anomalies – they’re symptoms of a deeply flawed milk pricing system that continues to prioritize processing flexibility over producer stability. While individual farmers can’t change the system overnight, you can adapt your operations to minimize vulnerability to these pricing whims.
This weekend, review your milk check, understand your component values, and evaluate your risk management strategy. Challenge the conventional wisdom that says, “there’s nothing we can do about milk prices” and instead focus on the factors within your control – component production efficiency, cost control, and strategic marketing decisions. Your operation’s survival might depend on it.
As Wisconsin fifth-generation dairy farmer Jeff Hanson says, “We’ve weathered tough markets before, but this combination of falling prices and changing rules makes planning especially difficult. We’re tightening our belts and focusing on what we can control – cow health, component production, and careful cost management. In dairy, you can’t control the milk price more than the weather, but you can control how you prepare for both.”
Learn more:
- March Milk Meltdown: The Hard Truth About FMMO Price Declines – This article provides direct context by detailing the price situation in the month immediately preceding the main article’s focus, highlighting the ongoing downward trend and specific component value crashes that set the stage for April’s numbers.
- FMMO milk pricing (Specifically, the article on February 2025 prices) – This piece offers a look further back, showcasing the regional disparities in FMMO pricing and the “tale of two dairy industries” that geographic location can create, a theme relevant to understanding the varied impact of the price changes discussed in the April analysis.
- USDA’s New Dairy Pricing Rules: The Financial Impact No One Saw Coming – This article directly addresses the impending FMMO rule changes, including the shift in the Class I mover formula, which is a critical component of the April price analysis and the May outlook. It provides background on the USDA’s rationale and potential broader financial impacts.
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