Trust Class III Milk for Risk-Management Planning, says Analyst

Class III milk prices have been an unreliable source of information for dairy producers developing their risk-management plans. 2020’s price divergence between Class III and actual producer pay prices was a shock to risk planning in tandem with renewed volatility in the dairy markets. Now, producers have to consider whether Class III and IV prices will also bring their milk checks up or down. The lack of consistency has made planning with Class III prices ineffective.

However, Ben Laine, a senior dairy analyst with Terrain, says hope remains for the reliability of the Class III milk price for risk-management plans. Laine says he expects price levels to improve in the remainder of 2023, even as high as $20 per cwt or above. He says if Class III and IV stay within $1 or $2 as they move – and he expects they will, producers should be able to rely on the effectiveness of leveraging Class III prices as a hedging tool and benchmark for milk prices more broadly.