Federal milk marketing orders announced December 2004 uniform (blend)
prices, producer price differentials (PPDs) and pooling levels, and five of
the six federal orders utilizing multiple component pricing reported
negative PPDs.

With the December Class I base price of $14.43/cwt., and prices for Class II
($13.98/cwt.) and Class IV ($13.42/cwt.) well below the Class III price
($16.14/cwt.), many orders saw a December blend price below the Class III
price (see Table 1).
 
As a result, substantial depooling occurred as federal order supply plants ­
after meeting order minimums ­ are allowed to divert milk out of the order
pool and into higher-valued Class III uses. That tends to further enhance
the negative PPD, because there¹s less of the higher-valued Class III milk
in the order pool.

The tell-tale sign of depooling is the wide volume variations between the
Class III total milk pooled and class utilization within a federal order for
a month, compared to the same month a year earlier.

For example, in Central #32, December 2004 Class III utilization was 15%,
compared to 53% last December and 67% in December 2002. In Midwest #33,
December 2004 Class III utilization was 13%, compared to 43% last year. In
Pacific Northwest #124, December 2004 Class III utilization was 8%, compared
to 33% in 2003. In Southwest #126, December 2004 Class III utilization was
1%, compared to 28% in 2003.