Understanding Dairy Markets

Models of FMMO Pricing
- Federal Milk Marketing Order, 2008 Tentative Final Decision Excel File Used to simulate the Class I Price Mover, Class II, Class III and Class IV Prices, Advance Pricing Factors and Component Prices under the Tentative Final Decision announced June 2008. These simulations encompase the Feb. 2007 - June 2008 period.
- Excel File used to show the relationship between Class III and IV prices and wholesale commodity prices under the tentative Final Decision announced, June 2008.
- Federal Milk Marketing Order 2000-Present Final Decision Excel File Used to Calculate Class I Price Mover, Class II, Class III and Class IV Prices, Advance Pricing Factors and Component Prices. The only information required to estimate either Advanced or Announced prices are the 2-week or monthly product price averages, respectively.
- A more detailed model than the above, the Class Price Forecaster: is an excel file which you can use to forecast Class I Price Mover, Class II, Class III and Class IV Prices, Advance Pricing Factors and Producer Component Prices incorporating the Final Decision. You can input NASS survey data to use this file. When opening this file you will be asked to enable macros. To enable the Class I differential calculation you must answer yes to this question. You can use this file to replicate the calculations done by the USDA in determining the Advanced or Announced prices. You will be required to input weekly transactions data necessary for the calculation of the monthly product price averages.
- Summary of FMMO Classified Prices rules for:
  - 2008
  - 2007
  - 2006
  - 2005
  - 2004
  - 2003
  - 2002
  - 2001
  - 2000
Models of California Milk Pricing
- Summary spreadsheet showing Califorinia 1,2,3,4a and 4b prices after April, 2005.
- A spreadseet model that incorporates the California Pricing rules for Class 1, 2, 3, 4a and 4b in effect after April 2005. To update this file you will need to input the underlying commodity prices that are reported in the monthly Minimum Class Price Letters published by the Dairy Division of the California Department of Food and Agriculture. A document explaining these pricing rules can be found in the following summary.
- A spreadseet model that incorporates the Dec. 2007 changes to the 4 b formulas and shows the differences between FMMO Class III and 4b.
- Spreadseet models that incorporate the California Pricing rules for Class 4a and 4b and Class 1, 2 and 3 prior to April, 2005. A document explaining these pricing rules can be found in the following summary.
Models of the Milk Income Loss Contract (MILC) Program
- A spreadsheet model showing how to calculate the Feed Cost Adjuster for the MILC program, Jan. 1, 2008 - Sept. 30, 2012
- A spreadsheet model simulating the MILC program as specified in the 2008 Farm Bill over the Jan. 2007 - April 2008 time period
- A spreadsheet model showing how to calculate your MILC and MILCX payments, Dec. 2001 - Sept. 2008
- A spreadsheet model for Undertaking a Farm-Level Analysis of Participation in the MILC-X Program. This set of spreadsheets allows calculations of payments that either have been received through the MILC program since December 2001 or will be received in future months under the MILCX program, based upon the best estimates possible for future milk prices (i.e., either published Class I mover prices or the most recent settle prices for Class III and IV futures contracts).
Models Useful in Designing Futures and Options for Milk Price Risk Managment
- Basic and Advanced Risk-Management Strategy Spreadsheets: Version 1 This workbook contains a series of eight worksheets to provide you extra background for the development of futures and options strategies.
- Basic and Advanced Risk-Management Strategy Spreadsheets: Version 2 This set of spreadsheet models extends the explanations given in the spreadsheets provided above and demonstrates calculations of productions, costs of production, and determination of basis. In addition, models are provided for determining how best to organize different strategies of risk management, including the simpler strategies of hedging in the futures market, buying of put or selling of call options, and combining a cash contract with a buy or call option. More advanced strategies, such as a "short fence", a futures "roll-up", or risk reversals are also illustrated.
- Mailbox/ClassIII Basis Calculations After users have entered actual or hypothetical mailbox prices for various months, this worksheet subtracts corresponding ClassIII/BFP prices and generates basis prices. Basis prices may be calculated for any month in a 6-year period prior to the present.
Miscellaneous Spreadsheet Models and Other Software
- Estimating Income Over Feed Costs (IOFC) This spreadsheet file can be used to estimate the daily per cow income over feed cost by a cow producing 65 lbs. All prices are in terms of Wisconsin prices except for SBM. IOFCs where milk is valued using the Wisconsin All-Milk price and the Wisconsin Mailbox price are presented. The underlying article used as a reference for this formulation can be found here
- Determination of Reasonable Class III Values This spreadsheet file can be used to calculate the critical values where a certain percentage of Class III values are below or above these values. These critical values change across month, time span used to calculated the average and standard deviation and the desired percentage.
- Predicted Wisconsin Mailbox Price This application uses the results from a regression model of the relationship between the Wisconsin Mailbox Price and the Announced Class III price to predict the mailbox price. The user can input a Class III futures settle price or a recently announced Class III price to obtain a mailbox price estimate.
- Predicting Farm-Specific Mailbox Price This spreadsheet model contains a Macro that allows the user to estimate their farm-specific Mailbox-Class III basis. This is similar to the web-based application but allows the user to enter their own Mailbox price in column C. Once the data is entered use the Ctl-r key sequence to estimate the regression model.
- Implied Cheddar Cheese Prices This spreadsheet file uses Class III, Butter and Dry Whey futures prices to estimate the implied average Cheddar Cheese price based on the Federal Order Class III pricing formula that existed in June, 2008
- Probability of Obtaining a Minimum Class III Value This spreadsheet file can be used to obtain an estimate of the probability of obtaining a particular Class III value or greater.
- Probability of Obtaining a Minimum Class III Value (Season-Specific) This spreadsheet file can be used to obtain an estimate of the probability of obtaining a particular Class III value or greater. Under this model we use season specific means and standard deviations (Winter=Dec, Jan & Feb; Spring=March, April & May; Summer=June, July, & Aug; Fall=Sep., Oct., & Nov.)
- Spreadsheet Model Used to Determine Value of Milk Used in Cheese Manufacturing There are a number of ways of determining milk value. This program uses the Van Slyke Cheese yield formula to allocate the value of cheese, whey and other products from cheese manufacturing to fat and protein components of milk.
- On-Farm Milk Processing Economics and Cash Flow
  - Instructions and Examples
  - Download
  After you have entered projected sales, investment costs, and production coefficients, this series of spreadsheet models allows you to analyze your "On-Farm Milk Processing" plan. This decision aid produces both profitability and cash-flow analyses. Sensitivity analysis is presented in a tabular format.
- Economic Analysis of Cheese Yield (EACY) This stand-alone Windows program analyzes your cheese yield based on the modified Van Slyke cheese yield formula. This software can be used to analyze the economic implications of changes in milk quality, cheese characteristics, milk standardization procedures, whey by-products produced, etc. This software is available for purchase. To view a PDF file describing this software, click here.

Center for Dairy Research
Department of Agricultural and Applied Economics
University of Wisconsin-Extension
University of Wisconsin-Madison
Wisconsin Milk Marketing Board

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