United States

Department of

Agriculture

Rural Business–

Cooperative

Service

RBS Research

Report 198

Alternative Milk Price

Series: Information for

Cooperatives
Abstract Prices generated by the Chicago Mercantile Exchange spot and futures markets were

used to estimate and compare with Federal Milk Market Order (FMMO) Class I base,

Class III, and Class IV prices. The time period covered 36 months since the FMMO

reforms went into effect in January 2000. Substantial monthly differences existed

between most estimated prices and their respective FMMO counterparts. Price series

covering the entire study period showed little differences between the estimated prices

and their corresponding FMMO prices in terms of average price, standard deviation,

and coefficient of variation.

Keywords: milk price, spot market, futures market, Federal Milk Market Order, cooperative.

Alternative Milk Price Series: Information for Cooperatives

K. Charles Ling

U.S. Department of Agriculture

Rural Development

Rural Business-Cooperative Service

STOP 3252, 1400 Independence Ave., S.W.

Washington, DC 20250-3252

Research Report 198

July 2003
Preface This study sought to answer inquiries by some cooperative managers and dairy producers concerning whether the Chicago Mercantile Exchange (CME) spot and futures

market prices could be used to generate prices series that would emulate Federal Milk

Market Order (FMMO) prices. The report shows some of the alternative price series as

they tracked the FMMO prices over a 36-month period from January 2000--when

FMMO reforms went into effect and inaugurated a new set of pricing formulas under

the order--through December 2002.

The price series and the methods of estimating them (summarized in table 1) are the

author’s choices. (Other researchers may choose other price series and estimation

methods.) Some of the differences (some may be occasionally large) between the

resulting price series and their respective FMMO counterparts may be due to the time

series (number of days covered by the monthly calculated prices and the 1-week lag of

prices reported by USDA’s National Agricultural Statistics Service (NASS)) used and

the transaction rules employed in the estimation. However, statistical tests indicate that

these alternative price series and their FMMO counterparts were essentially the same

(drawn from the same population, statistically speaking).

This report is a straightforward presentation of some basic data for further informed

discussions. It does not explain why the prices fluctuated the way they did—many

reports regarding the supply-demand market situation over the study period are readily

available elsewhere. Nor does it study the interactions between CME prices and the

prices reported by NASS. Arduous further research is needed to study the subject.

i
Contents Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iv

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Federal Milk Market Order price formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

CME cash prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

CME milk futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Estimating Methods for Class I Base Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Estimates using CME cash prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Estimates using CME futures prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Advanced Class III Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

FMMO advanced Class III price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Advanced Class III price estimated using CME cash prices . . . . . . . . . . . . . . . .2

Advanced Class III price estimated using CME Class III futures 

price (alternative 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Advanced Class III price estimated using CME Class III futures 

price (alternative 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Advanced Class IV Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

FMMO advanced Class IV price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Advanced Class IV price estimated using CME cash butter price . . . . . . . . . . .6

Advanced Class IV price estimated using CME Class IV futures price 

(alternative 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Advanced Class IV price estimated using CME Class IV futures price

(alternative 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Class I Base Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

FMMO Class I base price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Class I base price estimated using CME cash prices . . . . . . . . . . . . . . . . . . . . .8

Class I base price estimated using CME futures prices (alternative 1) . . . . . . . .8

Class I base price estimated using CME futures prices (alternative 2) . . . . . . .10

Class III Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

FMMO Class III price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Class III prices estimated using CME cash prices . . . . . . . . . . . . . . . . . . . . . .10

Class III price estimated using CME Class III futures price . . . . . . . . . . . . . . . .12

Class IV price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

FMMO Class IV price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Class IV price estimated using CME cash butter price . . . . . . . . . . . . . . . . . . .12

Class IV price estimated using CME Class IV futures price . . . . . . . . . . . . . . .14

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Reference—FMMO milk price information: Price formulas 2000-2002 . . . . . . . . . . .15

ii
Tables

Table 1--Methods of estimating various FMMO prices . . . . . . . . . . . . . . . . . . . . . . . . .3

Table 2--Comparison of advanced Class III price, calculated according to . . . . . . . . . .

FMMO and various estimated series, January 2000-December 2002 . . . . .4

Table 3--Comparison of advanced Class IV price, calculated according 

to FMMO and various estimated series, January 2000-December 2002 . . .7

Table 4--Comparison of FMMO Class I base price and the "higher of" 

various estimated series, January 2000-December 2002 . . . . . . . . . . . . . . .9

Table 5--Comparison of Class III prices, FMMO and estimated series, 

January 2000-December 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Table 6--Comparison of Class IV prices, FMMO and estimated series, 

January 2000-December 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Appendixes

Appendix I—FMMO and estimated advanced Class III and 

advanced Class IV prices, tables 1-12 and figures 1-12 . . . . . . . . . . . .20

Appendix II—FMMO and estimated Class I base prices, 

tables 1-3 and figures 1-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Appendix III—FMMO and estimated Class III and Class IV prices,

tables 1-8 and figures 1-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

iii
Highlights The year 2000 ushered in a new set of formulas for calculating milk prices under the

Federal Milk Market Orders (FMMO). At the same time, some price discovery mechanisms have seen more trading activities. This report used the cash and futures prices

at Chicago Mercantile Exchange (CME) to estimate FMMO milk prices and compared

the resulting price series with their FMMO counterparts for the 36-month period from

January 2000 through December 2002.

When the estimation was done with cash prices, it followed the same formulas for

FMMO price calculation. When it was done with the futures prices, the estimation

used the simple or weighted average of settling prices. The cash and futures trading

data used for each month covered the time period from the first trading day of the

month until the day when FMMO prices were announced.

To estimate the monthly Class I base price, the advanced Class III and Class IV prices

were calculated. The estimated monthly Class I base price was the higher of the two

advanced prices.

When spot market prices were used, the monthly advanced Class III price was estimated with CME cash cheese and butter sales prices and dry whey price reported by

USDA’s National Agricultural Statistics Service (NASS), while the advanced Class IV

price was estimated with CME cash butter sales price and NASS nonfat dry milk price.

When futures market prices were used, the monthly advanced Class III price was the

simple or weighted average of settling prices of Class III futures contracts. And the

advanced Class IV price was the simple or weighted average of settling prices of Class

IV futures contracts. There were two alternatives when futures prices were used.

Alternative 1 used the price data for the current month contracts that were traded during the previous month. The second alternative used the price data for the previous

month contracts that were traded during the previous month.

The monthly Class III or Class IV price was estimated the same way as the advanced

Class III or Class IV price, except that the price data covered the entire month up to

the day when the FMMO Class III and IV prices were announced, and the futures price

data used were for the current month contracts that were traded during the current

month. 

The range of monthly differences between most estimated prices and their respective

FMMO counterparts was substantial. However, price series covering the entire study

period showed the differences between the average estimated prices and their respective FMMO counterparts were small. Measures of price variation (standard deviation

and coefficient of variation) did not show much difference as well. Statistical tests indicate that these alternative price series and their FMMO counterparts were from the

same population (essentially the same).

Trading at the CME spot and futures markets takes place daily (three times a week for

cash butter), while wholesales prices reported to NASS is on a weekly basis. In the

short run, market information embodied in the daily prices and the weekly prices may

be somewhat different. NASS prices also have a 1-week lag behind the spot and

futures price. These time differences may have resulted in substantial monthly differences between the estimated prices and the corresponding FMMO prices. However,

in the long term, regardless of the price discovery mechanism used, all prices seem to

reflect the same fundamental market forces and the average prices and the measures

of price variation show little difference.

iv
Alternative Milk Price Series: Information

for Cooperatives

K. Charles Ling

Introduction

The dairy industry entered the 21st century with

some new or recently invigorated pricing mechanisms.

Most significant are the new price formulas under the

Federal Milk Market Orders (FMMO), dairy product

prices reported weekly by USDA’s National

Agricultural Statistics Service (NASS), and dairy

futures and cash markets at the Chicago Mercantile

Exchange (CME). Comparing the various price series

generated by these pricing mechanisms would enlighten dairy market participants in discussing issues

regarding milk price discovery.

This report uses CME cash market prices and

dairy futures prices to generate several price series

that can be compared to the FMMO price series. The

FMMO price series serves as the benchmarks for comparison. The time period for this study was 36 months

from January 2000--when FMMO reforms went into

effect--to December 2002.

Federal Milk Market Order price formulas. The

Federal Milk Market Orders promulgated on January

1, 2000, established a new set of formulas for setting

minimum prices for milk in various use classes. The

FMMO price formulas were modified by the

amendments later that year (December 28, 2000). A

court order injunction on January 31, 2001, further

fine-tuned the amendments. The complete set of the

FMMO price formulas in use during 2000 through

2002 is assembled in the reference section and was

taken from the USDA Agricultural Marketing Service

Dairy Programs website.

The FMMO price formulas closely associate milk

prices to the value of milk components in the end

products: cheese, butter, nonfat dry milk, and dry

whey. The movers of the pricing system are the wholesale prices of these products weekly reported in the

Dairy Products Prices by NASS. Data are collected by

NASS from manufacturers by fax and electronic mail

each week for sales during the previous week. Price

information collected is for the (wholesale) point of

sale for:

1. Natural, un-aged Cheddar cheese in 40-pound

blocks and 500-pound barrels.

2. Boxes of butter meeting USDA Grade AA standards, 80 percent butterfat, salted, fresh or storage.

3. USDA Extra Grade edible non-hygroscopic dry

whey.

4. USDA Extra Grade and USPH Grade A, nonfortified, nonfat dry milk.

A transaction is complete when the product is

"shipped out" and title transferred. Resales of purchased product, forward pricing, and intra-company

sales are excluded. Reporting by manufacturers was

made mandatory by law in November 2000; prior to

that date, reporting was voluntary. Price data for the

prior 4 weeks are subject to revision based on late

reports.

CME cash prices. The major dairy products traded

on the Chicago Mercantile Exchange (CME) spot

markets are:

● Cheddar cheese (40-pound blocks) and Cheddar

cheese for manufacturing (barrels): traded daily.

● Grade AA butter: traded on Monday,

Wednesday, and Friday.

● Grade A and Extra Grade nonfat dry milk: traded daily, but very few lots were traded during

the 2000-2002 period.

1
Trading activities at the CME as reported in the

Dairy Market News were used in the analysis for this

report. (Barrel cheese was adjusted to 38 percent moisture beginning with the January 2001 price.)

CME milk futures. For several years prior to 2000,

milk futures struggled to establish themselves both at

CME and New York Board of Trade. At the beginning

of 2000, only CME Class III milk futures were

relatively active. CME launched Class IV milk futures

on July 10, 2000, with October 2000 contracts. The

CME futures settling prices and volumes reported

biweekly in the Dairy Market News were used in this

study.

Estimating Methods for Class I Base Price

Methods of estimating various FMMO prices

used in this report are summarized in table 1. This section explains the procedures for estimating Class I base

price.

Estimates using CME cash prices. Weighted

average cash sales prices of cheese and butter up to the

last Friday on or before the 23rd day of the month (this

study follows the FMMO price announcement dates)

are used to estimate the advanced Class III or Class IV

price. Only actual sales prices are used and are

weighted by sales volumes. The higher of the

advanced Class III or Class IV price is the estimated

Class I base price.

The estimation follows the same FMMO price

formulas for calculating the FMMO advanced Class III

or Class IV price and the Class I base price. Prices for

nonfat dry milk and dry whey used in the estimate are

as reported by NASS and as used in FMMO price formulas. There have been no meaningful nonfat dry milk

cash trade at CME and dry whey is not traded there.

The differences between the estimated advanced Class

III or advanced Class IV price and the corresponding

advanced prices calculated according to FMMO are

entirely attributable to the different time series for butter and cheese (CME cash versus NASS) used in the

formula price calculation.

Estimates using CME futures prices. Two

alternatives for estimating Class I base price based on

CME futures prices are used in this report. Alternative

1 uses the higher of the average Class III or Class IV

futures price of daily trading from the first trading day

of the month up to the last Friday on or before the 23rd

day of the month, of the next month’s contracts. For

example, the January Class I base price is the higher of

the average Class III or Class IV futures price of daily

trading, up to the last Friday on or before the 23rd day

of December, of the January contracts.

Alternative 2 uses the higher of the average Class

III or Class IV futures price of daily trading, from the

first trading day of the preceding month up to the last

Friday on or before the 23rd day of the preceding

month, of the preceding month’s contracts. For example, the January Class I base price is the higher of Class

III or Class IV futures price of daily trading, up to the

last Friday on or before the 23rd day of December, of

the December contracts.

For both alternatives, the simple average of Class

III or Class IV futures settling prices of daily trading

and the average weighted by the trading volume were

used in this study. During a month when there was no

Class IV price futures contract traded, this report substituted simple average selling price of the month for

the weighted average price.

Advanced Class III Prices

FMMO advanced Class III price. During the 36-

month period, the FMMO advanced Class III price

averaged $11.13 per hundredweight of milk (table 2).

The price ranged from a low of $8.64 to a high of

$15.93 (a $7.29 difference).

Two measures of fluctuation of the FMMO

advanced Class III price were calculated. The standard

deviation was $2.03 around the 36-month average

price. The coefficient of variation shows that the standard deviation was 18.2 percent of the average price.

Advanced Class III price estimated using CME

cash prices. Over the 36-month period, the

estimated advanced Class III price using CME cash

cheese and butter prices (and NASS whey powder

price) averaged $11.15 per hundredweight (table 2).

The difference between this average price and the

FMMO advanced Class III price was small; the former

was $.02 higher than the latter.

Measures of price variation over the 36-month

period also show little differences. The estimated

advanced Class III price using CME cash prices ranged

from a low of $8.75 to a high of $16.00, a $7.25 difference (compared to $7.29 difference for the FMMO

advanced Class III price). The standard deviation

2
Table 1—Methods of estimating various FMMO prices

Number of days covered by the 

Product price used monthly price Transaction rule

Estimating advanced Class III/Class IV price:● Using CME cash prices CME cheese and butter cash sale prices First trading day of the month to

weighted by sales volumes FMMO price announcement day.Dry whey/NFDM price reported by NASS. Follow FMMO calculation.

● Using simple average CME Class III/Class IV CME Class IV milk futures settling First trading day of the month to Current month contracts traded

futures price (Alternative 1) price, simple average. FMMO price announcement day. during the previous month.

● Using weighted average CME Class III/Class IV CME Class III/Class IV milk futures settling First trading day of the month Current month contracts traded

futures price (Alternative 1) price weighted by volume traded. FMMO price announcement day. during the previous month.

● Using simple average CME Class III/Class IV CME Class III/Class IV milk futures settling First trading day of the month to Previous month contracts traded

futures price (Alternative 2) price, simple average. FMMO price announcement day. during the previous month.

● Using weighted average CME Class III/Class IV CME Class III/Class IV milk futures settling First trading day of the month to Previous month contracts traded

futures price (Alternative 2) price weighted by volume traded. FMMO price announcement day. during the previous month.

Estimating Class III/Class IV price:

● Using CME cash prices CME cheese and butter cash sale prices First trading day of the month to

weighted by sales volumes. FMMO price announcement day.Dry whey/NFDM price reported by NASS. Follow FMMO calculation.

● Using simple average CME Class III/Class IV CME Class III/Class IV milk futures settling First trading day of the month to Current month contracts traded

futures price price, simple average. FMMO price announcement day. during the current month.

● Using weighted average CME Class III/Class IV CME Class III/Class IV milk futures settling First trading day of the month to Current month contracts traded

futures price price weighted by volume traded. FMMO price announcement day. during the current month.

3
Table 2—Comparison of advanced Class III price, calculated according to FMMO and various estimated series, January 2000-December 2002 

Estimate price Measures of price variation

——————————————— ——————————————————————————

Range of difference Price range

———————— ———————————

Monthly Higher (lower) Details in

average than Standard Coefficient of

F- Appendix

Dollars/cwt. of milk price FMMO From To Low High Range deviation variation statistic

p-value I

Advanced Class III price,

calculated according to Table 1 &

FMMO 11.13 8.64 15.93 7.29 2.03 18.2% figure 1

Estimated based on CME cash Table 1 &

cheese and butter prices 11.15 0.02 (3.32) 1.43 8.75 16.00 7.25 2.05 18.4% 0.0014 0.9706 figure 1__________

Estimated using simple 

average CMEClass III futures price Table 4(Alternative 1) 11.26 0.13 (4.02) 2.07 9.34 15.46 6.12 1.67 14.8% 0.0824 0.7750 figure 4

Estimated using weighted 

average CME Class III Table 5(Alternative 1) 11.25 0.12 (4.07) 2.05 9.34 15.44 6.10 1.64 14.6% 0.0779 0.7809 figure 5

__________Estimated using simple 

average CME Class III Table 6futures price (Alternative 2) 11.06 (0.07) (1.51) 0.35 8.74 15.76 7.02 1.92 17.4% 0.0237 0.8782 figure 6

Estimated using weighted

average CME Class III Table 7

futures price (Alternative 2) 11.06 (0.07) (1.62) 0.36 8.73 15.73 7.00 1.90 17.2% 0.0225 0.8812 figure 7

4
($2.05) and the coefficient of variation (18.4 percent)

were very close to those for the FMMO advanced Class

III price.

However, when the individual monthly prices

were compared, the range of difference between the

two price series shows that the estimated advanced

Class III price using CME cash prices was from $3.32

lower to $1.43 higher than the FMMO advanced Class

III price.

The CME cash prices transmit instantaneous market information in a spot market, while weekly sales

reported to NASS carry the market information that

has been more fully digested by market participants.

Also the time period covered by the CME cash prices

as used in the monthly price calculation in this report

has more days than represented by the NASS reported

prices and the NASS prices have a 1-week lag. As a

result, in the short run, the difference between the two

price series can be quite substantial, especially when

the market is volatile and there are precipitous price

changes in the cash market. However, over the long

term (36 months in this report), the two price series

reflect the same fundamental market forces at work

and the average prices and the measures of price variation show little difference. This conclusion applies to

all price series estimated in this report vis-à-vis their

FMMO counterparts.

Statistical test indicates that there is no significant

difference between the estimated price series and its

FMMO counterpart. The mean of the estimated price

series is an unbiased estimate of the mean of its

FMMO counterpart. The F-statistic (at 0.0014) is very

small, while the p-value (at 0.9706) is very large.

Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 3.9778 and the p-value

is less than 0.05.)

The relationship between the estimated advanced

Class III price and its FMMO counterpart reflects the

underlying relationship between the dairy product

prices as traded at CME and the prices reported by

NASS. Over the 36-month period, the differences

between the average CME cash prices used in this

report for cheese and butter, respectively, and the average prices reported by NASS were small, although the

difference for a particular month could be quite substantial (Appendix I tables 2 and 3).

Advanced Class III price estimated using CME

Class III futures price (alternative 1). Under

Alternative 1, using the simple average CME Class III

futures price for the current month to estimate the

advanced Class III price over the 36-month period, it

yielded an average price of $11.26 per hundredweight

(table 2). The estimated advanced Class III price was

$0.13 higher than the FMMO advanced Class III price,

with the difference ranging from $4.02 lower to $2.07

higher. The price ranged from a low of $9.34 to a high

of $15.46 (a $6.12 difference). The standard deviation

of the estimated advanced Class III price was $1.67

and the coefficient of variation was 14.9 percent. The

estimated advanced Class III price fluctuated around

the average price less than the FMMO advanced Class

III price did.

Statistical test indicates that there is no significant difference between the estimated price series and

the FMMO advanced Class III price series. The mean

of the estimated price series is an unbiased estimate of

the mean of its FMMO counterpart. The F-statistics (at

0.0824) is very small, while the p-value (at 0.7750) is

very large. Statistically speaking, the estimated price

series and its FMMO counterpart are from the same

population. (They may be said to be not from the same

population if the F-statistic is greater than 3.9778 and

the p-value is less than 0.05.)

The results were about the same when, in place of

the simple average, the monthly weighted average

CME Class III futures price for the current month was

used to estimate the advanced Class III price.

Advanced Class III price estimated using CME

Class III futures price (alternative 2). Under

Alternative 2, using the simple average CME Class III

futures price for the previous month to estimate the

advanced Class III price, the average price over the 36-

month period was $11.06 per hundredweight (table 2).

The estimated advanced Class III price was $0.07

lower than the FMMO advanced Class III price, with

the monthly difference ranging from $1.51 lower to

$0.35 higher. The price ranged from a low of $ 8.74 to a

high of $15.76 (a $7.02 difference). The standard

deviation of the estimated advanced Class III price

was $1.92 and the coefficient of variation was 17.4

percent. The estimated advanced Class III price

fluctuated around the average price slightly less than

the FMMO advanced Class III price did.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO advanced Class III price series. The mean of

the estimated price series is an unbiased estimate of

the mean of its FMMO counterpart. The F-statistics (at

0.0237) is very small, while the p-value (at 0.8782) is

very large. Statistically speaking, the estimated price

5
series and its FMMO counterpart are from the same

population. (They may be said to be not from the same

population if the F-statistic is greater than 3.9778 and

the p-value is less than 0.05.)

These findings were almost identical to the

results when the monthly weighted average CME

Class III futures price for the previous month was used

to estimate the advanced Class III price.

Among the three estimation methods, using CME

cash prices yielded the average price that was closest

to the average advanced FMMO Class III price over

the 36-month period, and the two price series have

almost identical measurers of variation. On the other

hand, estimated prices using Class III futures price

under Alternative 1 (1) yielded the average price that

was farthest from the average advanced FMMO Class

III price, (2) had the widest monthly price difference

between the estimated price and the advanced FMMO

Class III price, but (3) fluctuated the least around the

average. Estimated prices under Alternative 2 show

the lowest monthly difference with advanced Class III

prices.

Under Alternative 1 or Alternative 2, the estimation results were not much different whether simple

average or weighted average Class III futures price

was used.

Advanced Class IV Prices

FMMO advanced Class IV price. During the 36-

month period, the FMMO advanced Class IV price

(announced or calculated) averaged $12.15 per

hundredweight of milk (table 3). The price ranged

from a low of $10.15 to a high of $15.85 (a $5.70

difference). The standard deviation was $1.59 around

the 36-month average price, and the coefficient of

variation shows that the standard deviation was 13.1

percent of the average price.

The advanced FMMO Class IV price averaged

more than $1 higher than the advanced FMMO Class

III price, and was less volatile as indicated by the standard deviation and the coefficient of variation.

Advanced Class IV price estimated using CME

cash butter price. At $12.21 per hundredweight, the

average estimated advanced Class IV price using CME

cash butter price (and NASS nonfat dry milk price)

was $0.06 higher than the FMMO advanced Class IV

price (table 3). The range of monthly difference was

from $0.85 lower to $0.93 higher. The estimated price

ranged from a low of $10.19 to a high of $15.73 (a $5.54

difference).

The standard deviation of the estimated

advanced Class IV price was $1.59 and the coefficient

of variation was 13 percent. These two measures of

price fluctuation were essentially the same as those for

the FMMO advanced Class IV price.

Statistical test indicates that there is no significant

difference between the estimated price series and its

FMMO counterpart. The mean of the estimated price

series is an unbiased estimate of the mean of its

FMMO counterpart. The F-statistic (at 0.0249) is very

small, while the p-value (at 0.8751) is very large.

Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 3.9778 and the p-value

is less than 0.05.)

The difference between the average estimated

advanced Class IV price and the FMMO advanced

Class IV price, at $0.06 (table 3), was higher than the

difference between the estimated advanced Class III

price and its FMMO counterpart ($0.02 in table 2).

However, the range of monthly price difference, less

than $1 either way, indicates that the estimated

advanced Class IV price tracked the FMMO advanced

Class IV price more closely. (This may be due to the

use of the same price series for the skim portion which

accounts for nearly 65 percent of the milk price.)

The relationship between the estimated advanced

Class IV price and its FMMO counterpart reflects the

underlying relationship between the butter price as

traded at CME and the price reported by NASS. The

difference between the average CME cash butter price

and the average butter price reported by NASS was

small (about 1 percent of the average price), although

the difference for a particular month could be about

$.20 per pound higher or lower (Appendix I table 3).

Advanced Class IV price estimated using CME

Class IV futures price (alternative 1). Under

Alternative 1 of using the simple average CME Class

IV futures price for the current month to estimate the

advanced Class IV price, the 27-month period (October

2000 through December 2002; CME started Class IV

milk futures trading with October 2000 contracts)

yielded an average price of $12.39 per hundredweight,

exactly the same as the average FMMO advanced

Class IV price for the same time period (table 3). The

monthly price difference ranged from $2.20 lower to

$0.50 higher. The price ranged from a low of $10.47 to

a high of $15.23. The $4.76 difference was almost $1

6
Table 3—Comparison of advanced Class IV price, calculated according to FMMO and various estimated series, January 2000-December 2002 

Estimate price Measures of price variation

——————————————— ——————————————————————————

Range of difference Price range

———————— ———————————

Monthly Higher (lower) Details in

average than Standard Coefficient of

F- Appendix

Dollars/cwt. of milk price FMMO From To Low High Range deviation variation statistic

p-value I

1. Advanced Class IV price,

calculated according to Table 8 &

FMMO --36 months 12.15 10.15 15.85 5.70 1.59 13.1% figure 8Estimated based on CME Table 8 &cash butter price 12.21 0.06 (0.85) 0.93 10.19 15.73 5.54 1.59 13.0% 0.0249 0.8751 figure 8____________

2. Advanced Class IV price,

calculated according to Table 9 &FMMO--27 months 12.39 10.15 15.85 5.70 1.75 14.1% figure 9

Estimated using simple averageCME Class IV futures price Table 9 &

(Alternative 1) 12.39 0.00 (2.20) 0.50 10.47 15.23 4.76 1.64 13.2% 0.0002 0.9885 figure 9Estimated using weightedaverage CME Class IV Table 10 &

futures price (Alternative 1) 12.39 0.00 (2.25) 0.61 10.42 15.32 4.90 1.63 13.2% 0.0000 0.9949 figure 10 

3. Advanced Class IV price, 

calculated according to FMMO Table 11 &--26 months 12.41 10.15 15.85 5.70 1.78 14.3% figure 11Estimated using simple averageCME Class IV futures price Table 11 &(Alternative 2) 12.44 0.03 (0.57) 0.30 10.30 15.78 5.48 1.70 13.7% 0.0026 0.9595 figure 11Estimated using weightedaverage CME Class IV futures price Table 12 &

(Alternative 2) 12.45 0.04 (0.59) 0.29 10.30 15.80 5.50 1.69 13.6% 0.0053 0.9423 figure 12

7
less than the FMMO counterpart.

The estimated advanced Class IV price fluctuated

less around its average than the FMMO advanced

Class IV price, as indicated by the standard deviation

and the coefficient of variation.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO advanced Class VI price series. The mean of

the estimated price series is an unbiased estimate of

the mean of its FMMO counterpart. The F-statistics (at

0.0002) is very small, while the p-value (at 0.9885) is

very large. Statistically speaking, the estimated price

series and its FMMO counterpart are from the same

population. (They may be said to be not from the same

population if the F-statistic is greater than 4.0266 and

the p-value is less than 0.05.)

When the monthly weighted average CME Class

IV futures price for the current month was used to estimate the advanced Class IV price, the results were the

same or very similar to when simple average CME

Class IV futures price was used.

Advanced Class IV price estimated using CME

Class IV futures price (alternative 2). Under

Alternative 2 of using the simple average CME Class

IV futures price for the previous month to estimate the

advanced Class IV price, the 26-month period

(November 2000 through December 2002; November

2000 was the first month the advanced Class IV price

could be estimated using October 2000 Class IV

futures price) yielded an average price of $12.44 per

hundredweight, $0.03 higher than the FMMO

advanced Class IV price for the same time period. The

monthly price difference could be from $0.57 lower to

$0.30 higher. The price ranged from a low of $10.30 to

a high of $15.78 (a $5.48 difference). These and other

measures of price variation (standard deviation and

the coefficient of variation) indicate that the degree of

price fluctuation differed little between the estimated

advanced Class IV price and the FMMO advanced

Class IV price.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO advanced Class VI price series. The mean of

the estimated price series is an unbiased estimate of

the mean of its FMMO counterpart. The F-statistics (at

0.0026) is very small, while the p-value (at 0.9595) is

very large. Statistically speaking, the estimated price

series and its FMMO counterpart are from the same

population. (They may be said to be not from the same

population if the F-statistic is greater than 4.0343 and

the p-value is less than 0.05.)

The results were almost the same when the

weighted average CME Class IV futures price for the

previous month was used to estimate the FMMO

advanced Class IV price.

Class I Base Prices

FMMO Class I base price. FMMO Class I base price

is reported in the Dairy Market News. Class I base

price estimated in this report is the higher of the

advanced Class III and Class IV prices derived from

alternative price series. The comparisons between

FMMO Class I base price and the estimates are

summarized in table 4 with details presented in

Appendix II.

During the 36-month period, the FMMO Class I

base price averaged $12.28 per hundredweight of milk

(table 4). FMMO Class I base price ranged from a low

of $10.15 to a high of $15.93, a $5.78 difference. The

standard deviation was $1.73 around the 36-month

average price, and the coefficient of variation shows

that the standard deviation was 14.1 percent of the

monthly price.

Class I base price estimated using CME cash

prices. The estimated Class I base price using CME

cash prices averaged $12.30 per hundredweight, $0.02

higher than the FMMO Class I base price, with the

monthly difference ranging from $2.85 lower to $0.93

higher (table 4). The price ranged from a low of $10.19

to a high of $16.00, a $5.81 price difference. The

standard deviation of the estimated Class I base price

was $1.69 and the coefficient of variation was 13.7

percent. Monthly difference between the estimated

Class I base price and the FMMO Class I base price

could be substantial; both price series, however,

exhibited very similar long-term price variations.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO Class I base price series. The mean of the estimated price series is an unbiased estimate of the mean

of its FMMO counterpart. The F-statistics (at 0.0048) is

very small, while the p-value (at 0.9447) is very large.

Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 3.9778 and the p-value

is less than 0.05.)

Class I base price estimated using CME futures

prices (alternative 1). Under Alternative 1 of using

8
9

Table 4—Comparison of FMMO Class I base price and the "higher of" various estimated series, January 2000-December 2002 

Estimate price Measures of price variation

——————————————— ——————————————————————————

Range of difference Price range

———————— ———————————

Monthly Higher (lower) Details in

average than Standard Coefficient of F- Appendix

Dollars/cwt. of milk price FMMO From To Low High Range deviation variation statistic p-value II

1. FMMO Class I base price Table 1 &

--36 months 12.28 10.15 15.93 5.78 1.73 14.1% figure 1Estimated "higher of" using CME Table 1 &cash butter and cheese prices 12.30 0.02 (2.85) 0.93 10.19 16.00 5.81 1.69 13.7% 0.0048 0.9447 figure 1____________

2. FMMO Class I base price Table 2 &

--27 months 12.56 10.15 15.93 5.78 1.89 15.0% figure 2Estimated using "higher of" simple average Class III or Class IV futures price Table 2 &(Alternative 1) 12.43 (0.13) (2.56) 0.50 10.47 15.46 4.99 1.68 13.5% 0.0759 0.7840 figure 2Estimated using "higher of"weighted average Class III

or Class IV futures price

(Alternative 1) 12.43 (0.13) (2.57) 0.61 10.42 15.44 5.02 1.66 13.4% 0.0771 0.7824 Table 2

3. FMMO Class I base price Table 3 &

--26 months 12.59 10.15 15.93 5.78 1.92 15.3% figure 3 Estimated using "higher of"simple average Class IIIor Class IV futures price Table 3 &(Alternative 2) 12.52 (0.07) (1.51) 0.30 10.44 15.78 5.34 1.76 14.1% 0.0016 0.9000 figure 3Estimated using "higher of"weighted average Class IIIor Class IVfutures price

(Alternative 2) 12.53 (0.06) (1.62) 0.29 10.44 15.80 5.36 1.74 13.9% 0.0138 0.9071 Table 3
10

the monthly average CME futures price for the current

month to estimate Class I base price, the time period

covered 27 months. The “higher of” estimates using

the simple average Class III or Class IV futures price

yielded an average price of $12.43 per hundredweight

(table 4). This estimated Class I base price was $0.13

lower than the $12.56 FMMO Class I base price

averaged over the same 27 months. The monthly

difference varied from $2.56 lower to $.50 higher.

The estimated price was from a low of $10.47 to a

high of $15.46 per hundredweight, a $4.99 difference.

The price range was narrower than that for the FMMO

Class I base price, which was as low as $10.15 to as

high as $15.93, a range of $5.78. The estimated Class I

base price also fluctuated less than the FMMO Class I

base price, as indicated by their respective standard

deviations and coefficients of variation.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO Class I base price series. The mean of the estimated price series is an unbiased estimate of the mean

of its FMMO counterpart. The F-statistics (at 0.0759) is

very small, while the p-value (at 0.7840) is very large.

Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 4.0266 and the p-value

is less than 0.05.)

When the monthly weighted average CME

futures price for the current month was used to estimate Class I base price, the results were about the

same as when the simple average price was used.

Class I base price estimated using CME futures

prices (alternative 2). Under Alternative 2 of using

the monthly average CME futures price for the

previous month to estimate Class I base price, the time

period covered 26 months. The “higher of” estimates

using the simple average Class III or Class IV futures

price yielded an average price of $12.52 per

hundredweight (table 4). This estimated Class I base

price was $0.07 lower than the $12.59 FMMO Class I

base price averaged over the same 26 months. The

monthly difference varied from $1.51 lower to $.30

higher. The estimated price was from a low of $10.44 to

a high of $15.34, a $5.34 difference. The price range

was narrower than that for the FMMO Class I base

price, which was as low as $10.15 to as high as $15.93,

a range of $5.78. The estimated Class I base price also

fluctuated less than the FMMO Class I base price did,

as indicated by their respective standard deviations

and coefficients of variation.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO Class I base price series. The mean of the estimated price series is an unbiased estimate of the mean

of its FMMO counterpart. The F-statistics (at 0.0016) is

very small, while the p-value (at 0.9000) is very large.

Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 4.0343 and the p-value

is less than 0.05.)

Using the monthly weighted average CME

futures price for the previous month to estimate Class I

base price showed very similar results.

Class III Prices

Methods of estimating FMMO Class III prices

used in this report are summarized in table 1.

FMMO Class III price. During the 36-month period,

the FMMO Class III price averaged $11.09 per

hundredweight of milk (table 5). The price ranged

from a low of $8.57 per hundredweight to a high of

$15.90, a $7.33 difference. The measures of fluctuation

of the FMMO Class III price show that standard

deviation was $2.00 around the 36-month average

price, and the coefficient of variation was 18 percent.

Class III prices estimated using CME cash

prices. Class III price is estimated following the

FMMO price formulas and using weighted average

cash sales prices of cheese (block and barrel) and

butter (for calculating butterfat value) up to the last

Friday on or before the fifth day of the following

month (this study follows the FMMO price

announcement dates). Whey price is as reported by

NASS and as used in FMMO price calculation.

The estimated Class III price using CME cash

prices (and NASS price for whey powder) averaged

$11.17 per hundredweight over the 36 months (table 5).

The estimated Class III price was $0.08 higher than the

FMMO Class III price, with the range of monthly difference being from $2.65 lower to $1.32 higher.

The price ranged from a low of $8.77 to a high of

$16.00, a $7.23 difference. The standard deviation of

the estimated Class III price was $2.05 and the coefficient of variation was 18.4 percent. These measures of
11

Table 5—Comparison of Class III prices, FMMO and estimated series, January 2000-December 2002

Estimate price Measures of price variation

——————————————— ——————————————————————————

Range of difference Price range

———————— ———————————

Monthly Higher (lower) Details in

average than Standard Coefficient of F- Appendix

Dollars/cwt. of milk price FMMO From To Low High Range deviation variation statistic p-value llI

Table 1 &

FMMO Class III 11.09 8.57 15.90 7.33 2.00 18.0% figure 1Estimated based on CME cash Table 1 &

cheese and butter prices 11.17 0.08 (2.65) 1.32 8.77 16.00 7.23 2.05 18.4% 0.0307 0.8615 figure 1

Estimated using simple average Table 4 &

CME Class III futures price 11.07 (0.02) (0.26) 0.18 8.70 15.81 7.11 1.94 17.5% 0.0009 0.9762 figure 4 

Estimated using weighted

average CME Class III Table 5 &futures price 11.06 (0.03) (0.44) 0.20 8.73 15.79 7.06 1.91 17.3% 0.0024 0.9612 figure 5
variation suggest that the degrees of price fluctuation

differed very little between the estimated Class III

price and the FMMO Class III price.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO Class III price series. The mean of the estimated price series is an unbiased estimate of the mean of

its FMMO counterpart. The F-statistics (at 0.0307) is

very small, while the p-value (at 0.8615) is very large.

Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 3.9778 and the p-value

is less than 0.05.)

The relationship between the estimated Class III

price and its FMMO counterpart reflect the underlying

relationship between the dairy product prices as traded at CME and the prices reported by NASS. Over the

36-month period, the differences between the average

CME cash prices for cheese and butter, respectively,

and the average prices reported by NASS were very

small, although differences for a particular month

could be quite substantial (Appendix III tables 2 and

3).

Class III price estimated using CME Class III

futures price. Class III price for the current month is

estimated using the CME Class III futures prices of

daily trading of current month’s contracts up to the

last Friday on or before the fifth day of the following

month. Both simple average and weighted average are

used. The weighted average uses actual trading

volume as weight.

Using the simple average CME Class III futures

price to estimate the Class III price, the 36-month period yielded an average price of $11.07 per hundredweight, $0.02 lower than the FMMO Class III price.

The monthly difference was also very small, ranging

from $0.26 lower to $0.18 higher (table 5).

The price ranged from a low of $8.70 per hundredweight to a high of $15.81, a $7.11 difference. The

standard deviation of the estimated Class III price was

$1.94 and the coefficient of variation was 17.5 percent.

The estimated Class III price tracked very closely the

FMMO Class III price. This should be the case because,

as a general rule, the futures price and the market

price ought to converge when the futures contracts

expire.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO Class III price series. The mean of the estimated price series is an unbiased estimate of the mean of

its FMMO counterpart. The F-statistics (at 0.0009) is

very small, while the p-value (at 0.9762) is very large.

Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 3.9778 and the p-value

is less than 0.05.)

When the monthly weighted average CME Class

III futures price was used to estimate the Class III

price, the results were about the same as using simple

average.

Class IV Prices

Methods of estimating FMMO Class IV prices

used in this report are summarized in table 1.

FMMO Class IV price. During the 36 months, the

FMMO Class IV price averaged $12.13 per

hundredweight of milk (table 6). The price ranged

from a low of $10.22 to a high of $15.59, a $5.37

difference. The standard deviation was $1.57 around

the 36-month average price, and the coefficient of

variation shows that the standard deviation was 13

percent of the monthly price.

Class IV price estimated using CME cash butter

price. Class IV price for the current month is

estimated following the FMMO price formulas and

using weighted average cash sales prices of butter up

to the last Friday on or before the fifth day of the

following month. Nonfat dry milk price is as reported

by NASS and as used in FMMO price calculation.

The estimated Class IV price using CME cash

butter price averaged $12.20 per hundredweight over

the 36-month period (table 6). The estimated Class IV

price was $0.07 higher than the FMMO Class IV price,

with the range of monthly difference being from $1.08

lower to $.68 higher.

The price ranged from a low of $10.29 to a high of

$15.51, a $5.22 per hundredweight difference. The

standard deviation of the estimated Class IV price was

$1.54 and the coefficient of variation was 12.6 percent.

The estimated Class III price tracked closely the

FMMO Class III price.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO Class VI price series. The mean of the estimated price series is an unbiased estimate of the mean of

its FMMO counterpart. The F-statistics (at 0.0320) is

very small, while the p-value (at 0.8586) is very large.

12
13

Table 6--Comparison of Class IV prices, FMMO and estimated series, January 2000-December 2002

Estimate price Measures of price variation

——————————————— ——————————————————————————

Range of difference Price range

———————— ———————————

Monthly Higher (lower) Details in

average than Standard Coefficient of F- Appendix

Dollars/cwt. of milk price FMMO From To Low High Range deviation variation statistic p-value llI

1. FMMO Class IV Table 6 &

--36 months 12.13 10.22 15.59 5.37 1.57 12.9% figure 6 Estimated based on CME Table 6 &cash butter price 12.20 0.07 (1.08) 0.68 10.29 15.51 5.22 1.54 12.6% 0.0320 0.8586 figure 6____________

2. FMMO Class IV Table 7 &

--27 months 12.33 10.22 15.59 5.37 1.75 14.2% figure 7Estimated using simple average Table 7 &CME Class IV futures price 12.36 0.03 (0.44) 0.48 10.30 15.76 5.46 1.71 13.8% 0.0042 0.9489 figure 7Estimated using weighted average CME Class IV Table 8 &futures price 12.38 0.05 (0.50) 0.48 10.31 15.80 5.49 1.71 13.8% 0.0122 0.9126 figure 8
Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 3.9778 and the p-value

is less than 0.05.)

The small difference between average estimated

Class IV price and its FMMO counterpart reflects the

small difference between average CME cash butter

price and the average butter price reported by NASS

(Appendix III table 3). (This may be due to the use of

the same price series for the skim portion which

accounts for nearly 65 percent of the milk price.)

Class IV price estimated using CME Class IV

futures price. Class IV price for the current month is

estimated using the CME Class IV futures prices of

daily trading of current month’s contracts up to the

last Friday on or before the fifth day of the following

month. Both simple average and weighted average are

used. The weighted average uses actual trading

volume as weight.

Using the simple average CME Class IV futures

price to estimate the Class IV price, the 27-month period yielded an average price of $12.36 per hundredweight, $0.03 higher than the average FMMO Class IV

price of $12.33. The monthly difference was also small,

ranging from $0.44 lower to $0.48 higher (table 6).

The price ranged from a low of $10.30 per hundredweight to a high of $15.76, a $5.46 difference. The

standard deviation of the estimated Class IV price was

$1.71 and the coefficient of variation was 13.8 percent.

The degree of price fluctuation differed little between

the estimated Class IV price and the FMMO Class IV

price.

Statistical test indicates that there is no significant

difference between the estimated price series and the

FMMO Class VI price series. The mean of the estimated price series is an unbiased estimate of the mean of

its FMMO counterpart. The F-statistics (at 0.0042) is

very small, while the p-value (at 0.9489) is very large.

Statistically speaking, the estimated price series and its

FMMO counterpart are from the same population.

(They may be said to be not from the same population

if the F-statistic is greater than 4.0266 and the p-value

is less than 0.05.)

When the monthly weighted average CME Class

IV futures price was used to estimate the Class IV

price, the results were about the same as using simple

average.

Conclusions

Over the study period, the differences between

the average prices estimated using prices reported by

various price discovery mechanisms and their respective FMMO counterparts were small. Measures of price

variation (standard deviation and coefficient of variation) did not show much difference as well. Statistical

tests indicate that the estimated price series and their

respective FMMO counterparts were from the same

population. (The mean of an estimated price series is

an unbiased estimate of the mean of its FMMO counterpart.) However, when the individual monthly prices

were compared, the range of difference between most

estimated prices and their FMMO counterparts were

quite substantial.

Trading at the CME spot and futures markets

takes place daily (three times a week for cash butter),

while wholesales prices reported to NASS is on a

weekly basis. In the short run, market information

embodied in the daily prices and the weekly prices

may be somewhat different. NASS prices also have a 1-

week lag behind the spot and futures price. These time

differences may have resulted in substantial monthly

differences between the estimated prices and the corresponding FMMO prices. However, in the long term,

regardless of the price discovery mechanism used, all

prices seem to reflect the same fundamental market

forces and the average prices and the measures of

price variation show little difference.

14
Reference

Federal Milk Order Price Information

(http://www.ams.usda.gov/dyfmos/mib/cls_prod_c

mp_pr.htm)

Price Formulas - 2000

Note: Milk prices are per 100 pounds or cwt.,

rounded to the nearest cent. Component prices

are per pound, rounded to nearest one-hundredth cent. Cheese, dry whey, butter, and nonfat

dry milk prices are weighted averages of weekly

NASS survey prices.

Class I:

Class I Price = (Class I skim milk price x 0.965)

+ (Class I butterfat price x 3.5).

Class I Skim Milk Price = Higher of advanced

Class III or IV skim milk pricing factors +

applicable Class I differential.

Class I Butterfat Price = Advanced butterfat

pricing factor + (applicable Class I differential

divided by 100).

Note: Advanced pricing factors are computed

using applicable price formulas listed below,

except that product price averages are for two

weeks.

Class II:

Class II Price = (Class II skim milk price x

0.965) + (Class II butterfat price x 3.5).

Class II Skim Milk Price = Advanced Class IV

skim milk pricing factor + $0.70.

Class II Butterfat Price = Butterfat price + 

$0.007.

Class II Nonfat Solids Price = Class II skim

milk price divided by 9.

Class III:

Class III Price = (Class III skim milk price x

0.965) + (Butterfat price x 3.5).

Class III Skim Milk Price = (Protein price x 3.1)

+ (Other solids price x 5.9).

Protein Price = ((Cheese price - 0.1702) x 1.405)

+ ((((Cheese price - 0.1702) x 1.582) - Butterfat

price) x 1.28).

Other Solids Price = (Dry whey price - 0.137)

divided by 0.968.

Butterfat Price = (Butter price - 0.114) divided

by 0.82.

Class IV:

Class IV Price = (Class IV skim milk price x

0.965) + (Butterfat price x 3.5).

Class IV Skim Milk Price = Nonfat solids price

x 9.

Nonfat Solids Price = (Nonfat dry milk price -

0.137) divided by 1.02.

Butterfat Price = See Class III.

Producer Prices:

Butterfat Price = See Class III.

Protein Price = See Class III.

Others solids Price = See Class III.

Somatic Cell Adjustment Rate = Cheese price x

0.0005, rounded to fifth decimal place. Rate is

per 1,000 somatic cell count.

Price Formulas - 2001

Note: Milk prices are per 100 pounds or cwt.,

rounded to the nearest cent. Component prices

are per pound, rounded to nearest one-hundredth cent. Cheese, dry whey, butter, and nonfat

dry milk prices are weighted monthly averages of

weekly NASS survey prices, rounded to the nearest one-hundredth cent.

15
Class I: (January and February)

Class I Base Price (3.5%) = Higher of advanced

Class III or IV pricing factors.

Base Skim Milk Price for Class I = Advanced

skim milk pricing factor used to compute the

Class I base price.

Base Butterfat Price for Class I = Advanced

butterfat pricing factor used to compute the

Class I base price.

Class I Price = Class I base price + applicable

Class I differential.

Class I Butterfat Price = Base butterfat price for

Class I + (applicable Class I differential divided

by 100).

Class I: (March to date)

Class I Price = (Class I skim milk price x 0.965)

+ (Class I butterfat price x 3.5).

Class I Skim Milk Price = Higher of advanced

Class III or IV skim milk pricing factors +

applicable Class I differential.

Class I Butterfat Price = Advanced butterfat

pricing factor+ (applicable Class I differential

divided by 100).

Note: Advanced pricing factors are computed

using applicable price formulas listed below,

except that product price averages are for two

weeks.

Class II:

Class II Price = (Class II skim milk price x

0.965) + (Class II butterfat price x 3.5).

Class II Skim Milk Price = Advanced Class IV

skim milk pricing factor + $0.70.

Class II Butterfat Price = Butterfat price +

$0.007.

Class II Nonfat Solids Price = Class II skim

milk price divided by 9.

Class III:

Class III Price = (Class III skim milk price x

0.965) + (Butterfat price x 3.5).

Class III Skim Milk Price = (Protein price x 3.1)

+ (Other solids price x 5.9).

Protein Price (Jan./Feb. Advance Prices only.) =

(Cheese price – 0.165) x 1.405.

Protein Price = ((Cheese price – 0.165) x 1.405 +

((((Cheese price – 0.165) x 1.582) - Butterfat

price) x 1.28).

Other Solids Price = (Dry whey price – 0.14)

divided by 0.968, snubbed at zero.

Class III Butterfat Price (Jan./Feb. Advance

Prices only.) = (Cheese price – 0.165) x 1.582.

Butterfat Price = (Butter price – 0.115) divided

by 0.82.

Class IV:

Class IV Price = (Class IV skim milk price x

0.965) + (Butterfat price x 3.5).

Class IV Skim Milk Price = Nonfat solids price

x 9.

Nonfat Solids Price = Nonfat dry milk price -

0.14

Class IV Butterfat Price (Jan./Feb. Advance

Prices only.) = (Butter price - 0.115) divided by

0.82.

Butterfat Price = See Class III.

Somatic Cell Adjustment Rate = Cheese price x

0.0005, rounded to fifth decimal place. Rate is per

1,000 somatic cell count difference from 350,000.

Price Formulas - 2002

Note: Milk prices are per 100 pounds or cwt.,

rounded to the nearest cent. Component prices

are per pound, rounded to nearest one-hundredth cent. Cheese, dry whey, butter, and nonfat 

16
dry milk prices are weighted monthly averages

of weekly NASS survey prices, rounded to the

nearest one-hundredth cent.

Class I:

Class I Price = (Class I skim milk price x 0.965)

+ (Class I butterfat price x 3.5).

Class I Skim Milk Price = Higher of advanced

Class III or IV skim milk pricing factors +

applicable Class I differential.

Class I Butterfat Price = Advanced butterfat

pricing factor+ (applicable Class I differential

divided by 100).

Note: Advanced pricing factors are computed

using applicable price formulas listed below,

except that product price averages are for two

weeks.

Class II:

Class II Price = (Class II skim milk price x

0.965) + (Class II butterfat price x 3.5).

Class II Skim Milk Price = Advanced Class IV

skim milk pricing factor + $0.70.

Class II Butterfat Price = Butterfat price +

$0.007.

Class II Nonfat Solids Price = Class II skim

milk price divided by 9.

Class III:

Class III Price = (Class III skim milk price x

0.965) + (Butterfat price x 3.5).

Class III Skim Milk Price = (Protein price x 3.1)

+ (Other solids price x 5.9).

Protein Price = ((Cheese price – 0.165) x 1.405 +

((((Cheese price – 0.165) x 1.582) - Butterfat

price) x 1.28).

Other Solids Price = (Dry whey price – 0.14)

divided by 0.968, snubbed at zero.

Butterfat Price = (Butter price – 0.115) divided

by 0.82.

Class IV:

Class IV Price = (Class IV skim milk price x

0.965) + (Butterfat price x 3.5).

Class IV Skim Milk Price = Nonfat solids price

x 9.

Nonfat Solids Price = Nonfat dry milk price -

0.14

Butterfat Price = See Class III.

Somatic Cell Adjustment Rate = Cheese price x

0.0005, rounded to fifth decimal place. Rate is per

1,000 somatic cell count difference from 350,000.

17
18
Appendixes

Appendix I—FMMO and estimated advanced Class III and advanced Class IV prices, tables

1-12 and figures 1-12

Appendix II—FMMO and estimated Class I base prices, tables 1-3 and figures 1-3 

Appendix III—FMMO and estimated Class III and Class IV prices, tables 1-8 and figures 1-8 

19
Appendix I table1—FMMO advanced Class III price and estimate using CME cash cheese and butter prices and NASS dry whey price

Advanced Class III price (dollars/cwt) Cheese (thousand pounds)

——————————————————————————— —————————————

Estimated

based on Estimated

CME cash over (under) NASS

Year Month FMMO prices FMMO survey1 CME2

2000 January 9.79 10.29 0.50 25,633 1,848

February 10.23 9.72 (0.51) 26,835 924

March 9.56 9.61 0.05 28,707 1,050

April 9.52 9.61 0.09 31,765 1,344

May 9.43 9.42 (0.01) 32,087 588

June 9.38 9.29 (0.09) 32,676 1,176

July 9.38 10.26 0.88 34,609 2,352

August 10.72 10.61 (0.11) 29,329 3,486

September 10.33 10.14 (0.19) 28,193 10,080

October 10.83 11.43 0.60 24,740 12,348

November 10.43 8.85 (1.58) 25,593 1,974

December 8.64 8.75 0.11 25,022 1,890

2001 January 9.51 9.95 0.44 28,314 1,344

February 10.05 9.57 (0.48) 26,155 1,260

March 10.24 10.76 0.52 31,720 462

April 11.45 11.80 0.35 29,026 420

May 11.97 12.81 0.84 31,056 1,596

June 13.40 14.83 1.43 31,347 1,302

July 15.03 15.37 0.34 33,837 2,226

August 15.40 15.65 0.25 30,964 966

September 15.56 15.93 0.37 28,837 1,386

October 15.93 16.00 0.07 32,174 840

November 15.76 12.44 (3.32) 33,176 3,066

December 11.18 11.38 0.20 35,037 4,956

2002 January 11.96 11.81 (0.15) 35,040 2,982

February 11.72 12.07 0.35 38,080 1,428

March 11.62 10.81 (0.81) 40,683 1,680

April 10.57 10.58 0.01 36,255 294

May 10.76 11.19 0.43 41,095 588

June 11.03 10.45 (0.58) 38,802 546

July 10.18 9.90 (0.28) 42,436 630

August 9.42 9.36 (0.06) 36,326 2,436

September 9.57 10.05 0.48 37,479 2,604

October 9.88 10.08 0.20 37,633 5,418

November 10.60 11.33 0.73 35,806 6,048

December 9.71 9.28 (0.43) 37,610 1,512 ——— ——— ——— ———— ———

Simple average 11.13 11.15 0.02 32,613 2,363

Range—low 8.64 8.15 (3.32)

Range—high 15.93 16.00 1.43

Standard deviation 2.03 2.05

% of average 18.2% 18.4%

F-statistic 0.0014

p-value 0.9706

1 Product pounds reported up to the price calculation date; may not be the same as the NASS final numbers.

2 Converted from the number of lots of cheese traded, assuming 42,000 pounds per lot.

20
21

Appendix I figure 1— FMMO Advanced Class III price and estimate using CME cash cheese and butter prices.

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated base on

CME cash prices
Appendix I table 2—NASS and CME cheese prices for calculating advanced Class III price

Cheese price (dollars/pound) Cheese (thousand pounds)

—————————————————————————— —————————————

NASS price, CME price,

two-week average for up

average of to 23rd day of CME price

previous previous over (under) NASS

Year Month month month NASS survey1 CME2

2000 January 1.1268 1.1753 0.0485 25,633 1,848

February 1.1696 1.1205 (0.0491) 26,835 924

March 1.1084 1.1142 0.0058 28,707 1,050

April 1.1073 1.1179 0.0106 31,765 1,344

May 1.1035 1.1023 (0.0012) 32,087 588

June 1.1011 1.0975 (0.0036) 32,676 1,176

July 1.1060 1.1898 0.0838 34,609 2,352

August 1.2269 1.2164 (0.0105) 29,329 3,486

September 1.1847 1.1674 (0.0173) 28,193 10,080

October 1.2380 1.2975 0.0595 24,740 12,348

November 1.2012 1.0476 (0.1536) 25,593 1,974

December 1.0259 1.0427 0.0168 25,022 1,890

2001 January 1.0930 1.1388 0.0458 28,314 1,344

February 1.1340 1.0844 (0.0496) 26,155 1,260

March 1.1402 1.1932 0.0530 31,720 462

April 1.2769 1.3135 0.0366 29,026 420

May 1.3326 1.4234 0.0908 31,056 1,596

June 1.4731 1.6132 0.1401 31,347 1,302

July 1.6232 1.6576 0.0344 33,837 2,226

August 1.6521 1.6707 0.0186 30,964 966

September 1.6696 1.7078 0.0382 28,837 1,386

October 1.7136 1.7195 0.0059 32,174 840

November 1.6777 1.3488 (0.3289) 33,176 3,066

December 1.2182 1.2394 0.0212 35,037 4,956

2002 January 1.2895 1.2749 (0.0146) 35,040 2,982

February 1.2740 1.3092 0.0352 38,080 1,428

March 1.2862 1.2082 (0.0780) 40,683 1,680

April 1.2008 1.2007 (0.0001) 36,255 294

May 1.2229 1.2635 0.0406 41,095 588

June 1.2521 1.1952 (0.0569) 38,802 546

July 1.1792 1.1509 (0.0283) 42,436 630

August 1.1098 1.1035 (0.0063) 36,326 2,436

September 1.1237 1.1692 0.0455 37,479 2,604

October 1.1427 1.1627 0.0200 37,633 5,418

November 1.1921 1.2653 0.0732 35,806 6,048

December 1.0985 1.0577 (0.0408) 37,610 1,512 ——— ——— ——— ———— ———

Simple average 1.2521 1.2545 0.0024 32,613 2,363

Range—low 1.0259 1.0427 (0.3.289)

Range—high 1.7136 1.7195 0.1401

Standard deviation 0.1892 0.1917

% of average 15.1% 15.3%

F-statistic 0.0028

p-value 0.9581

1 Product pounds reported up to the price calculation date; may not be the same as the NASS final numbers. 2 Converted from the number of lots of cheese traded, assuming 42,000 pounds per lot.

22
23

Appendix I figure 2— NASS and CME cheese prices for calculating advanced Class III price

J FMAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/pound

2.2000

2.1000

2.0000

1.9000

1.8000

1.7000

1.6000

1.5000

1.4000

1.3000

1.2000

1.1000

1.0000

0.9000

0.8000

CME price, average

for up to 23rd day of

previous month

NASS price, twoweek average of

previous month
Appendix 1 table 3— NASS and CME butter prices for calculating advanced butterfat prices

Butter price (dollars/pound) Butter (thousand pounds)

—————————————————————————— —————————————

NASS price, CME price,

two-week average for up

average of to 23rd day of CME price

previous previous over (under) NASS

Year Month month month NASS survey1 CME2

2000 January 0.9220 0.9027 (0.0193) 6.037 996

February 0.8768 0.9127 0.0359 10,074 1,162

March 0.9105 0.9329 0.0224 10.928 2,532

April 0.9331 0.9848 0.0517 10,736 1,702

May 1.0618 1,0704 0.0086 9,449 2,117

June 1,1140 1.2369 0.1229 8,166 3,237

July 1.2911 1.2308 (0.0603) 5,414 4,482

August 1,1729 1.1884 0.0155 4,767 3,943

September 1,1465 1,1829 0.0364 5,415 5,727

October 1.1444 1.1618 0.0174 5,706 3,528

November 1.1337 1.1410 0.0073 5,838 3,071

December 1.2032 1.3719 0.1687 6.950 996

2001 January 1.6110 1.4113 (0.1997) 7,360 872

February 1.1279 1.2344 0.1065 11,440 374

March 1.3026 1.3539 0.0513 7,327 374

April 1.4862 1.5560 0.0698 10,218 1,411

May 1.6637 1.8819 0.2182 6,328 1,162

June 1.8397 1.8577 0.0180 7,426 1,702

July 1.9275 1.9570 0.0295 5,715 2,324

August 1.9364 1.7794 (0.1570) 5,154 4,565

September 1.9544 2.0249 0.0705 6,814 2,739

October 2.1781 2.1516 (0.0265) 7,632 1,162

November 1,6366 1.4990 (0.1376) 7,254 3,030

December 1.3051 1.3422 0.0371 10,962 2,490

2002 January 1.2580 1.2600 0.0020 6,905 1,577

February 1.335 1.3502 0.0167 9,178 1,660

March 1.2316 1.2364 0.0048 10,885 1,204

April 1.2411 1.2429 0.0018 8,232 996

May 1.2088 1.1605 (0.0483) 9,109 1,702

June 1.0643 1.0525 (0.0118) 7,942 3,569

July 1.0533 1.0364 (0.0169) 6,169 2,656

August 1.0188 1.0174 (0.0014) 6,302 872

September 1.0010 0.9730 (0.0280) 7,880 1,992

October 0.9297 0.9402 0.0105 6,470 4,773

November 0.9697 1.0232 0.0535 8,372 8,342

December 0.9991 1.0430 0.0439 8,397 8,840 ———— ———— ———— ———— ———

Simple average 1.2830 1.2973 0.0143 7,749 2,608

Range—low 0.8768 0.9027 (0.1997)

Range—high 2.1781 2.1516 0.2182

Standard deviation 0.3434 0.3375

% of average 26.8% 26.0%

F-statistic 0.0317

p-value 0.8593

1 Product pounds reported up to the price calculation date; may not be the same as the NASS final numbers. 2 Converted from the number of lots of butter traded, assuming 41,500 pounds per lot.

24
25

Appendix I figure 3— NASS & CME butter prices for calculating advanced butterfat prices

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/pounds

2.2000

2.1000

2.0000

1.9000

1.8000

1.7000

1.6000

1.5000

1.4000

1.3000

1.2000

1.1000

1.0000

0.9000

0.8000

NASS butter

price, two-week

average of 

previous month

CME butter price,

average for up 

to 23rd day of

previous month
Appendix I table 4—FMMO advanced Class III price and estimate using simple average Class III futures price

(Alternative 1)

Advanced Class III price (dollars/cwt)

——————————————————————————

Estimated using Milk volume Contract month

simple average Estimated (million pounds) (traded in

CME Class III over (under) of futures previous

Year Month FMMO futures price FMMO contracts traded1 month)

2000 January 9.79 10.65 0.86 76.2 January

February 10.23 10.19 (0.04) 44.8 February

March 9.56 9.96 0.40 54.2 March

April 9.52 9.81 0.29 40.4 April

May 9.43 9.69 0.26 35.2 May

June 9.38 10.26 0.88 71.6 June

July 9.38 11.45 2.07 138.8 July

August 10.72 11.36 0.64 161.4 August

September 10.33 10.57 0.24 108.2 September

October 10.83 10.87 0.04 107.4 October

November 10.43 9.54 (0.89) 64.4 November

December 8.64 9.34 0.70 149.6 December

2001 January 9.51 9.74 0.23 43.0 January

February 10.05 9.94 (0.11) 101.0 February

March 10.24 10.80 0.56 155.4 March

April 11.45 11.26 (0.19) 125.0 April

May 11.97 12.33 0.36 151.0 May

June 13.40 14.30 0.90 207.2 June

July 15.03 14.98 (0.05) 266.4 July

August 15.40 14.89 (0.51) 90.2 August

September 15.56 15.46 (0.10) 161.0 September

October 15.93 15.20 (0.73) 118.2 October

November 15.76 11.74 (4.02) 259.0 November

December 11.18 11.49 0.31 89.8 December

2002 January 11.96 11.53 (0.43) 99.6 January

February 11.72 11.82 0.10 139.8 February

March 11.62 11.15 (0.47) 182.0 March

April 10.57 11.03 0.46 192.0 April

May 10.76 11.26 0.50 147.0 May

June 11.03 11.05 0.02 161.8 June

July 10.18 10.50 0.32 188.0 July

August 9.42 10.34 0.92 211.8 August

September 9.57 10.55 0.98 236.0 September

October 9.88 10.08 0.20 133.6 October

November 10.60 10.34 (0.26) 205.0 November

December 9.71 9.80 0.09 102.80 December ——— ——— ——— ————

Simple average 11.13 11.26 0.13 133.9

Range—low 8.64 9.34 (4.02)

Range—high 15.93 15.46 2.07

Standard deviation 2.03 1.67

% of average 18.2% 14.8%

F-statistic 0.0824

p-value 0.7750

1 Each contract is 200,000 pounds of milk.

26
27

Appendix I figure 4— FMMO advanced Class III price and estimate using simple average Class III futures

price (Alternative 1)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated using simple average

CME Class III futures price
Appendix I table 5—FMMO advanced Class III price and estimate using weighted average Class III futures price

(Alternative 1)

Advanced Class III price (dollars/cwt)

——————————————————————————

Estimated using Milk volume Contract month

weighted average Estimated (million pounds) (traded in

CME Class III over (under) of futures previous

Year Month FMMO futures price1 FMMO contracts traded2 month)

2000 January 9.79 10.76 0.97 76.2 January

February 10.23 10.16 (0.07) 44.8 February

March 9.56 10.00 0.44 54.2 March

April 9.52 9.85 0.33 40.4 April

May 9.43 9.69 0.26 35.2 May

June 9.38 10.26 0.88 71.6 June

July 9.38 11.43 2.05 138.8 July

August 10.72 11.34 0.62 161.4 August

September 10.33 10.60 0.27 108.2 September

October 10.83 10.84 0.01 107.4 October

November 10.43 9.52 (0.91) 64.4 November

December 8.64 9.34 0.70 149.6 December

2001 January 9.51 9.76 0.25 43.0 January

February 10.05 10.01 (0.04) 101.0 February

March 10.24 10.81 0.57 155.4 March

April 11.45 11.23 (0.22) 125.0 April

May 11.97 12.29 0.32 151.0 May

June 13.40 14.29 0.89 207.2 June

July 15.03 14.59 (0.44) 266.4 July

August 15.40 14.85 (0.55) 90.2 August

September 15.56 15.44 (0.12) 161.0 September

October 15.93 15.19 (0.74) 118.2 October

November 15.76 11.69 (4.07) 259.0 November

December 11.18 11.51 0.33 89.8 December

2002 January 11.96 11.56 (0.40) 99.6 January

February 11.72 11.91 0.19 139.8 February

March 11.62 11.06 (0.56) 182.0 March

April 10.57 11.03 0.46 192.2 April

May 10.76 11.27 0.51 147.0 May

June 11.03 11.12 0.09 161.8 June

July 10.18 10.55 0.37 188.0 July

August 9.42 10.39 0.97 211.8 August

September 9.57 10.57 1.00 236.0 September

October 9.88 10.02 0.14 133.6 October

November 10.60 10.32 (0.28) 205.0 November

December 9.71 9.86 0.15 102.8 December ——— ——— ——— ————

Simple average 11.13 11.25 0.12 133.9

Range—low 8.64 9.34 (4.07)

Range—high 15.93 15.44 2.05

Standard deviation 2.03 1.64

% of average 18.2% 14.6%

F-statistic 0.0779

p-value 0.7809

1 Weighted by volume traded.

2 Each contract is 200,000 pounds of milk

28
29

Appendix I figure 5— FMMO advanced Class III price and estimate using weighted average Class III futures

price (Alternative 1).

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated using

weighted average

CME Class III

futures price
Appendix I table 6—FMMO advanced Class III price and estimate using simple average Class III futures price

(Alternative 2)

Advanced Class III price (dollars/cwt)

——————————————————————————

Estimated using Milk volume

simple average Estimated (million pounds)

CME Class III over (under) of futures Contract

Year Month FMMO futures price FMMO contracts traded1 month

2000 January 9.79 9.77 (0.02) 66.2 December

February 10.23 10.09 (0.14) 35.8 January

March 9.56 9.71 0.15 129.6 February

April 9.52 9.66 0.14 27.6 March

May 9.43 9.52 0.09 27.6 April

June 9.38 9.51 0.13 23.4 May

July 9.38 9.61 0.23 66.6 June

August 10.72 10.64 (0.08) 60.8 July

September 10.33 10.11 (0.22) 54.4 August

October 10.83 10.71 (0.12) 54.2 September

November 10.43 10.10 (0.33) 135.4 October

December 8.64 8.74 0.10 46.0 November

2001 January 9.51 9.25 (0.26) 40.2 December

February 10.05 9.73 (0.32) 63.6 January

March 10.24 10.21 (0.03) 60.8 February

April 11.45 11.34 (0.11) 78.8 March

May 11.97 11.93 (0.04) 110.8 April

June 13.40 13.75 0.35 121.6 May

July 15.03 14.92 (0.11) 173.6 June

August 15.40 15.23 (0.17) 70.0 July

September 15.56 15.45 (0.11) 64.8 August

October 15.93 15.76 (0.17) 36.4 September

November 15.76 14.25 (1.51) 270.2 October

December 11.18 11.22 0.04 36.6 November

2002 January 11.96 11.70 (0.26) 41.8 December

February 11.72 11.76 0.04 76.8 January

March 11.62 11.71 0.09 116.0 February

April 10.57 10.61 0.04 58.2 March

May 10.76 10.90 0.14 125.6 April

June 11.03 10.88 (0.15) 131.8 May

July 10.18 10.24 0.06 46.0 June

August 9.42 9.36 (0.06) 47.2 July

September 9.57 9.55 (0.02) 263.8 August

October 9.88 9.87 (0.01) 44.8 September

November 10.60 10.62 0.02 59.8 October

December 9.71 9.75 0.04 115.8 November ——— ——— ——— ————

Simple average 11.13 11.06 (0.07) 82.9

Range—low 8.64 8.74 (1.51)

Range—high 15.93 15.76 0.35

Standard deviation 2.03 1.92

% of average 18.2% 17.4%

F-statistic 0.0237

p-value 0.8782

1 Each contract is 200,000 pounds of milk.

30
31

Appendix I figure 6— FMMO advanced Class III price and estimate using simple average Class III futures price

(Alternative 2)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated using simple average

CME Class III futures price
Appendix I table 7—FMMO advanced Class III price and estimate using weighted average Class III futures price

(Alternative 2)

Advanced Class llI price (dollars/cwt)

——————————————————————————

Estimated using Milk volume

weighted average Estimated (million pounds)

CME Class III over (under) of futures Contract

Year Month FMMO futures price1 FMMO contracts traded2 month

2000 January 9.79 9.81 0.02 66.2 December

February 10.23 10.17 (0.06) 35.8 January

March 9.56 9.74 0.18 129.6 February

April 9.52 9.69 0.17 27.6 March

May 9.43 9.54 0.11 27.6 April

June 9.38 9.51 0.13 23.4 May

July 9.38 9.67 0.29 66.6 June

August 10.72 10.68 (0.04) 60.8 July

September 10.33 10.14 (0.19) 54.4 August

October 10.83 10.72 (0.11) 54.2 September

November 10.43 10.14 (0.29) 135.4 October

December 8.64 8.73 0.09 46.0 November

2001 January 9.51 9.28 (0.23) 40.2 December

February 10.05 9.72 (0.33) 63.6 January

March 10.24 10.20 (0.04) 60.8 February

April 11.45 11.32 (0.13) 78.8 March

May 11.97 11.89 (0.08) 110.8 April

June 13.40 13.76 0.36 121.6 May

July 15.03 14.91 (0.12) 173.6 June

August 15.40 15.14 (0.26) 70.0 July

September 15.56 15.41 (0.15) 64.8 August

October 15.93 15.73 (0.20) 36.4 September

November 15.76 14.14 (1.62) 270.2 October

December 11.18 11.17 (0.01) 36.6 November

2002 January 11.96 11.70 (0.26) 41.8 December

February 11.72 11.73 0.01 76.8 January

March 11.62 11.72 0.10 116.0 February

April 10.57 10.61 0.04 58.2 March

May 10.76 10.91 0.15 125.6 April

June 11.03 10.92 (0.11) 131.8 May

July 10.18 10.28 0.10 46.0 June

August 9.42 9.42 - 47.2 July

September 9.57 9.54 (0.03) 263.8 August

October 9.88 9.89 0.01 44.8 September

November 10.60 10.61 0.01 59.8 October

December 9.71 9.70 (0.01) 115.8 November ——— ——— ——— ———

Simple average 11.13 11.06 (0.07) 82.9

Range—low 8.64 8.73 (1.62)

Range—high 15.93 15.73 0.36

Standard deviation 2.03 1.90

% of average 18.2% 17.2%

F-statistic 0.0225

p-value 0.8812

1 Weighted by volume traded.

2 Each contract is 200,000 pounds of milk.

32
33

Appendix I figure 7— FMMO advanced Class III price and estimate using weighted average Class III

futures price (Alternative 2)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated using weighted average CME Class III futures price
Appendix I table 8—FMMO advanced Class IV price and estimate using CME cash butter price and NASS nonfat

dry milk price

Advanced Class IV price (dollars/cwt) Butter (thousand pounds)

—————————————————————————— —————————————

Estimated

based on Estimated

CME cash over (under) NASS

Year Month FMMO butter price FMMO survey1 CME2

2000 January 10.90 10.82 (0.08) 6,037 996

February 10.71 10.85 0.14 10,074 1,162

March 10.84 10.93 0.09 10,928 2,532

April 10.93 11.15 0.22 10,736 1,702

May 11.48 11.51 0.03 9,449 2,117

June 11.70 12.23 0.53 8,166 3,237

July 12.46 12.21 (0.25) 5,414 4,482

August 11.95 12.01 0.06 4,767 3,943

September 11.84 11.99 0.15 5,415 5,727

October 11.89 11.96 0.07 5,706 3,528

November 11.82 11.85 0.03 5,838 3,071

December 12.13 12.85 0.72 6,950 996

2001 January 13.99 13.14 (0.85) 7,360 872

February 11.94 12.40 0.46 11,440 374

March 12.65 12.87 0.22 7,327 374

April 13.44 13.73 0.29 10,218 1,411

May 14.21 15.14 0.93 6,328 1,162

June 14.99 15.06 0.07 7,426 1,702

July 15.34 15.47 0.13 5,715 2,324

August 15.01 14.34 (0.67) 5,154 4,565

September 14.84 15.14 0.30 6,814 2,739

October 15.85 15.73 (0.12) 7,632 1,162

November 13.50 12.91 (0.59) 7,254 3,030

December 11.98 12.14 0.16 10,962 2,490

2002 January 11.67 11.68 0.01 6,905 1,577

February 11.95 12.02 0.07 9,178 1,660

March 11.48 11.50 0.02 10,885 1,204

April 11.47 11.48 0.01 8,232 996

May 11.26 11.05 (0.21) 9,109 1,702

June 10.61 10.56 (0.05) 7,942 3,569

July 10.62 10.54 (0.08) 6,169 2,656

August 10.48 10.47 (0.01) 6,302 872

September 10.46 10.34 (0.12) 7,880 1,992

October 10.15 10.19 0.04 6,470 4,773

November 10.39 10.61 0.22 8,372 8,342

December 10.52 10.71 0.19 8,397 8,840 ——— ——— ——— ————

Simple average 12.15 12.21 0.06 7,749 2,608

Range—low 10.15 10.19 (0.85)

Range—high 15.85 15.73 0.93

Standard deviation 1.59 1.59

% of average 13.1% 13.0%

F-statistic 0.0249

p-value 0.8751

1 Product pounds reported up to the price calculation date; may not be the same as the NASS final numbers. 2 Converted from the number of lots of butter traded, assuming 41,500 pounds per lot.

34
35

Appendix I figure 8— FMMO advanced Class IV price and estimate using CME cash butter price and NASS

nonfat dry milk price.

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated

based 

on CME cash

butter price
Appendix I table 9—FMMO advanced Class IV price and estimate using simple average Class IV futures price

(Alternative 1)

Advanced Class IV price (dollars/cwt)

——————————————————————————

Estimated using Milk volume Contract month

simple average Estimated (million pounds) (traded in

CME Class IV over (under) of futures previous

Year Month FMMO futures price FMMO contracts traded1 month)

2000 January

February

March

April

May

June

July

August

September

October 11.89 11.64 (0.25) 8.0 October

November 11.82 11.54 (0.28) 1.0 November

December 12.13 12.13 - 50.0 December

2001 January 13.99 11.79 (2.20) 22.6 January

February 11.94 12.36 0.42 8.4 February

March 12.65 12.97 0.32 13.8 March

April 13.44 13.94 0.50 8.4 April

May 14.21 14.70 0.49 15.0 May

June 14.99 15.04 0.05 6.4 June

July 15.34 15.17 (0.17) 3.4 July

August 15.01 14.45 (0.56) 1.2 August

September 14.84 15.04 0.20 4.8 September

October 15.85 15.23 (0.62) 0.6 October

November 13.50 13.20 (0.30) 8.2 November

December 11.98 12.38 0.40 3.2 December

2002 January 11.67 11.93 0.26 4.4 January

February 11.95 12.03 0.08 10.2 February

March 11.48 11.64 0.16 12.8 March

April 11.47 11.79 0.32 3.2 April

May 11.26 11.35 0.09 3.2 May

June 10.61 10.84 0.23 28.4 June

July 10.62 10.66 0.04 9.4 July

August 10.48 10.51 0.03 - August

September 10.46 10.61 0.15 2.2 September

October 10.15 10.47 0.32 0.2 October

November 10.39 10.50 0.11 - November

December 10.52 10.55 0.03 - December ——— ——— ——— ———

Simple average 12.39 12.39 0.00 8.5

Range—low 10.15 10.47 (2.20)

Range—high 15.85 15.23 0.50

Standard deviation 1.75 1.64

% of average 14.1% 13.2%

F-statistic 0.0002

p-value 0.9885

1 Each contract is 200,000 pounds of milk.

36
37

Appendix I figure 9— FMMO advanced Class IV price and estimate using simple average Class IV futures price

(Alternative 1)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated using simple average

CME Class IV futures price
38

Appendix I table 10—FMMO advanced Class IV price and estimate using weighted average Class IV futures price

(Alternative 1)

Advanced Class IV price (dollars/cwt)

——————————————————————————

Estimated using Milk volume Contract month

weighted average Estimated (million pounds) (traded in

CME Class IV over (under) of futures previous

Year Month FMMO futures price1 FMMO contracts traded2 month)

2000 January

February

March

April

May

June

July

August

September

October 11.89 11.61 (0.28) 8.0 October

November 11.82 11.55 (0.27) 1.0 November

December 12.13 12.24 0.11 50.0 December

2001 January 13.99 11.74 (2.25) 22.6 January

February 11.94 12.22 0.28 8.4 February

March 12.65 12.93 0.28 13.8 March

April 13.44 14.05 0.61 8.4 April

May 14.21 14.63 0.42 15.0 May

June 14.99 14.97 (0.02) 6.4 June

July 15.34 15.01 (0.33) 3.4 July

August 15.01 14.62 (0.39) 1.2 August

September 14.84 15.03 0.19 4.8 September

October 15.85 15.32 (0.53) 0.6 October

November 13.50 13.19 (0.31) 8.2 November

December 11.98 12.34 0.36 3.2 December

2002 January 11.67 11.93 0.26 4.4 January

February 11.95 12.05 0.10 10.2 February

March 11.48 11.67 0.19 12.8 March

April 11.47 11.86 0.39 3.2 April

May 11.26 11.46 0.20 3.2 May

June 10.61 10.80 0.19 28.4 June

July 10.62 10.68 0.06 9.4 July

August3 10.48 10.51 0.03 - August

September 10.46 10.68 0.22 2.2 September

October 10.15 10.42 0.27 0.2 Octobe

November3 10.39 10.50 0.11 - November

December3 10.52 10.55 0.03 - December

——— ——— ——— ————

Simple average 12.39 12.39 0.00 8.5

Range—low 10.15 10.42 (2.25)

Range—high 15.85 15.32 0.61

Standard deviation 1.75 1.63

% of average 14.1% 13.2%

F-statistic 0.0000

p-value 0.9949

1 Weighted by volume traded.

2 Each contract is 200,000 pounds of milk.

3 No weighted average price, because no contract was traded; use simple average instead.
39

Appendix I figure 10— FMMO advanced Class IV price and estimate using weighted average Class IV futures price

(Alternative 1)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated uising weighted average

CME Class IV futures price
40

Appendix I table 11—FMMO advanced Class IV price and estimate using simple average Class IV futures price

(Alternative 2)

Advanced Class IV base price (dollars/cwt)

———————————————————————

Estimated using Milk volume

simple average Estimated (million pounds)

CME Class IV over (under) of futures Contract

Year Month FMMO futures price FMMO contracts traded1 month

2000 January

February

March

April

May

June

July

August

September

October

November 11.82 11.62 (0.20) 0.8 October

December 12.13 12.43 0.30 31.6 November

2001 January 13.99 13.42 (0.57) 43.8 December

February 11.94 12.08 0.14 9.2 January

March 12.65 12.67 0.02 18.2 February

April 13.44 13.40 (0.04) 6.2 March

May 14.21 14.35 0.14 11.6 April

June 14.99 14.87 (0.12) 5.8 May

July 15.34 15.12 (0.22) 2.6 June

August 15.01 14.92 (0.09) 22.0 July

September 14.84 14.89 0.05 6.4 August

October 15.85 15.78 (0.07) 0.2 September

November 13.50 13.39 (0.11) 0.4 October

December 11.98 12.05 0.07 4.4 November

2002 January 11.67 11.94 0.27 - December

February 11.95 12.08 0.13 0.4 January

March 11.48 11.76 0.28 1.2 February

April 11.47 11.59 0.12 9.2 March

May 11.26 11.38 0.12 7.0 April

June 10.61 10.74 0.13 20.4 May

July 10.62 10.61 (0.01) 8.8 June

August 10.48 10.50 0.02 4.0 July

September 10.46 10.56 0.10 5.0 August

October 10.15 10.44 0.29 - September

November 10.39 10.30 (0.09) - October

December 10.52 10.50 (0.02) - November ——— ——— ——— ——

Simple average 12.41 12.44 0.03 8.4

Range—low 10.15 10.30 (0.57)

Range—high 15.85 15.78 0.30

Standard deviation 1.78 1.70

% of average 14.3% 13.7%

F-statistic 0.0026

p-value 0.9595

1 Each contract is 200,000 pounds of milk.
41

Appendix I figure 11— FMMO advanced Class IV price and estimate using simple average Class IV futures price

(Alternative 2)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated using uising simple average

CME Class IV futures price
42

Appendix I table 12—FMMO advanced Class IV price and estimate using weighted average Class IV futures price

(Alternative 2)

Advance Class IV price (dollars/cwt)

——————————————————————————

Estimated using Milk volume

weighted average Estimated (million pounds)

CME Class IV over (under) of futures Contract

Year Month FMMO futures price1 FMMO contracts traded2 month

2000 January

February

March

April

May

June

July

August

September

October

November 11.82 11.69 (0.13) 0.8 October

December 12.13 12.39 0.26 31.6 November

2001 January 13.99 13.40 (0.59) 43.8 December

February 11.94 12.07 0.13 9.2 January

March 12.65 12.75 0.10 18.2 February

April 13.44 13.40 (0.04) 6.2 March

May 14.21 14.42 0.21 11.6 April

June 14.99 14.74 (0.25) 5.8 May

July 15.34 15.14 (0.20) 2.6 June

August 15.01 15.06 0.05 22.0 July

September 14.84 14.81 (0.03) 6.4 August

October 15.85 15.80 (0.05) 0.2 September

November 13.50 13.25 (0.25) 0.4 October

December 11.98 12.15 0.17 4.4 November

2002 January3 11.67 11.94 0.27 - December

February 11.95 12.10 0.15 0.4 January

March 11.48 11.73 0.25 1.2 February

April 11.47 11.58 0.11 9.2 March

May 11.26 11.34 0.08 7.0 April

June 10.61 10.75 0.14 20.4 May

July 10.62 10.69 0.07 8.8 June

August 10.48 10.51 0.03 4.0 July

September 10.46 10.71 0.25 5.0 August

October3 10.15 10.44 0.29 - September

November3 10.39 10.30 (0.09) - October

December3 10.52 10.50 (0.02) - November

——— ——— ——— ———

Simple average 12.41 12.45 0.04 8.4

Range—low 10.15 10.30 (0.59)

Range—high 15.85 15.80 0.29

Standard deviation 1.78 1.69

% of average 14.3% 13.6%

F-statistic 0.0053

p-value 0.9423

1 Weighted by volume traded.

2 Each contract is 200,000 pounds of milk.

3 No weighted average price, because no contract was traded; use simple average instead.
43

Appendix I figure 12— FMMO advanced Class IV price and estimate using weighted average Class 

IV futures price (Alternative 2)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO

Estimated uising weighted average

CME Class IV futures price
Appendix II table 1—FMMO Class I base price and estimated "higher of" price using CME cash butter and cheese

prices

Estimated using Estimated

CME cash price over

FMMO Class I butter and cheese (under)

Year Month base price prices (“higher of”) FMMO

2000 January 10.90 10.82 (0.08)

February 10.71 10.85 0.14

March 10.84 10.93 0.09

April 10.93 11.15 0.22

May 11.48 11.51 0.03

June 11.70 12.23 0.53

July 12.46 12.21 (0.25)

August 11.95 12.01 0.06

September 11.84 11.99 0.15

October 11.89 11.96 0.07

November 11.82 11.85 0.03

December 12.13 12.85 0.72

2001 January 13.99 13.14 (0.85)

February 11.94 12.40 0.46

March 12.65 12.87 0.22

April 13.44 13.73 0.29

May 14.21 15.14 0.93

June 14.99 15.06 0.07

July 15.34 15.47 0.13

August 15.40 15.65 0.25

September 15.56 15.93 0.37

October 15.93 16.00 0.07

November 15.76 12.91 (2.85)

December 11.98 12.14 0.16

2002 January 11.96 11.81 (0.15)

February 11.95 12.05 0.10

March 11.62 11.50 (0.12)

April 11.47 11.48 0.01

May 11.26 11.19 (0.07)

June 11.03 10.56 (0.47)

July 10.62 10.54 (0.08)

August 10.48 10.47 (0.01)

September 10.46 10.34 (0.12)

October 10.15 10.19 0.04

November 10.60 11.33 0.73

December 10.52 10.71 0.19 ——— ——— ———

Simple average 12.28 12.30 0.02

Range--low 10.15 10.19 (2.85)

Range--high 15.93 16.00 0.93

Standard deviation 1.73 1.69

% of average 14.1% 13.7%

F-statistic 0.0048

p-value 0.9447

44
45

Appendix II figure 1— FMMO advanced Class I base price and estimated “higher of” price using CME cash butter

and cheese prices

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

Estimated using

CME cash butter

and cheese prices 

FMMO Class I base price
Appendix II table 2—FMMO Class I base price and estimated "higher of" price using Class III or Class IV futures

price (Alternative 1)

Estimated using Estimated using

simple average Estimated weighted average Estimated

CME futures price over CME futures price over

FMMO Class I Class III/IV price (under) Class III/IV price (under)

Year Month base price (“higher of”) FMMO (“higher of”) FMMO

2000 January

February

March

April

May

June

July

August

September

October 11.89 11.64 (0.25) 11.61 (0.28)

November 11.82 11.54 (0.28) 11.55 (0.27)

December 12.13 12.13 - 12.24 0.11

2001 January 13.99 11.79 (2.20) 11.74 (2.25)

February 11.94 12.36 0.42 12.22 0.28

March 12.65 12.97 0.32 12.93 0.28

April 13.44 13.94 0.50 14.05 0.61

May 14.21 14.70 0.49 14.63 0.42

June 14.99 15.04 0.05 14.97 (0.02)

July 15.34 15.17 (0.17) 15.01 (0.33)

August 15.40 14.89 (0.51) 14.85 (0.55)

September 15.56 15.46 (0.10) 15.44 (0.12)

October 15.93 15.23 (0.70) 15.32 (0.61)

November 15.76 13.20 (2.56) 13.19 (2.57)

December 11.98 12.38 0.40 12.34 0.36

2002 January 11.96 11.93 (0.03) 11.93 (0.03)

February 11.95 12.03 0.08 12.05 0.10

March 11.62 11.64 0.02 11.67 0.05

April 11.47 11.79 0.32 11.86 0.39

May 11.26 11.35 0.09 11.46 0.20

June 11.03 11.05 0.02 11.12 0.09

July 10.62 10.66 0.04 10.68 0.06 

August1 10.48 10.51 0.03 10.51 0.03 

September 10.46 10.61 0.15 10.68 0.22

October 10.15 10.47 0.32 10.42 0.27

November1 10.60 10.50 (0.10) 10.50 (0.10)

December1 10.52 10.55 0.03 10.55 0.03

——— ——— ——— ——— ———

Simple average 12.56 12.43 (0.13) 12.43 (0.13)

Range--low 10.15 10.47 (2.56) 10.42 (2.57)

Range--high 15.93 15.46 0.50 15.44 0.61

Standard deviation 1.89 1.68 1.66

% of average 15.0% 13.5% 13.4%

F-statistic 0.0759 0.0771

p-value 0.7840 0.7824

1 No weighted average advanced Class IV price, because no contract was traded; use simple average instead.

46
47

Appendix II figure 2— FMMO Class I base price and estimated “higher of” price using Class III or Class IV

futures price (Alternative 1)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO Class I base price

Estimsated using simple average

CME futures Class III/IV price
48

Appendix II table 3—FMMO Class I base price and estimated "higher of" price using Class III or Class IV futures

price (Alternative 2)

Estimated using Estimated using

simple average Estimated weighted average Estimated

CME futures price over CME futures price over

FMMO Class I Class III/IV price (under) Class III/IV price (under)

Year Month base price (“higher of”) FMMO (“higher of”) FMMO

2000 January

February

March

April

May

June

July

August

September

October

November 11.82 11.62 (0.20) 11.69 (0.13)

December 12.13 12.43 0.30 12.39 0.26

2001 January 13.99 13.42 (0.57) 13.40 (0.59)

February 11.94 12.08 0.14 12.07 0.13

March 12.65 12.67 0.02 12.75 0.10

April 13.44 13.40 (0.04) 13.40 (0.04)

May 14.21 14.35 0.14 14.42 0.21

June 14.99 14.87 (0.12) 14.74 (0.25)

July 15.34 15.12 (0.22) 15.14 (0.20)

August 15.40 15.23 (0.17) 15.14 (0.26)

September 15.56 15.45 (0.11) 15.41 (0.15)

October 15.93 15.78 (0.15) 15.80 (0.13)

November 15.76 14.25 (1.51) 14.14 (1.62)

December 11.98 12.05 0.07 12.15 0.17

2002 January1 11.96 11.94 (0.02) 11.94 (0.02)

February 11.95 12.08 0.13 12.10 0.15

March 11.62 11.76 0.14 11.73 0.11

April 11.47 11.59 0.12 11.58 0.11

May 11.26 11.38 0.12 11.34 0.08

June 11.03 10.88 (0.15) 10.92 (0.11)

July 10.62 10.61 (0.01) 10.69 0.07

August 10.48 10.50 0.02 10.51 0.03

September 10.46 10.56 0.10 10.71 0.25

October1 10.15 10.44 0.29 10.44 0.29

November 10.60 10.62 0.02 10.61 0.01

December1 10.52 10.50 (0.02) 10.50 (0.02)

——— ——— ——— ——— ———

Simple average 12.59 12.52 (0.07) 12.53 (0.06)

Range--low 10.15 10.44 (1.51) 10.44 (1.62)

Range--high 15.93 15.78 0.30 15.80 0.29

Standard deviation 1.92 1.76 1.74

% of average 15.3% 14.1% 13.9%

F-statistic 0.0160 0.0138

p-value 0.9000 0.9071

1 No weighted average advanced Class IV price, because no contract was traded; use simple average instead.
49

Appendix II figure 3— FMMO Class I base price and estimated “higher of” price using Class III or Class IV futures

price (Alternative 2)

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO Class I

base price

Estimsated using simple average

CME futures Class III/IV price
Appendix III table 1—Class III price and estimate using CME cash cheese and butter prices and NASS dry whey

price

Class lll price (dollars/pound) Cheese (thousand pounds)

—————————————————————————— —————————————

Estimated Estimated

based on price over

CME cash (under) NASS

Year Month FMMO prices FMMO survey1 CME2

2000 January 10.05 9.68 (0.37) 69,472 1,050

February 9.54 9.62 0.08 57,250 2,016

March 9.54 9.58 0.04 62,402 1,554

April 9.41 9.43 0.02 82,515 1,302

May 9.37 9.34 (0.03) 66,086 1,764

June 9.46 10.53 1.07 68,953 3,528

July 10.66 10.38 (0.28) 73,395 5,502

August 10.13 10.43 0.30 57,598 15,204

September 10.76 11.68 0.92 38,282 13,566

October 10.02 8.77 (1.25) 64,799 4,116

November 8.57 8.86 0.29 45,446 2,352

December 9.37 9.81 0.44 68,563 2,730

2001 January 9.99 9.67 (0.32) 54,630 1,722

February 10.27 10.96 0.69 66,638 588

March 11.42 11.93 0.51 60,497 672

April 12.06 13.38 1.32 81,140 2,478

May 13.83 14.87 1.04 61,322 1,428

June 15.02 15.37 0.35 67,577 2,562

July 15.46 15.63 0.17 78,441 1,470

August 15.55 16.07 0.52 58,529 2,142

September 15.90 15.78 (0.12) 78,051 2,436

October 14.60 11.95 (2.65) 66,398 5,166

November 11.31 11.74 0.43 66,754 7,308

December 11.80 11.74 (0.06) 78,793 4,452

2002 January 11.87 11.96 0.09 77,283 1,386

February 11.63 10.77 (0.86) 79,725 1,890

March 10.65 10.87 0.22 98,145 714

April 10.85 11.10 0.25 78,396 1,050

May 10.82 10.35 (0.47) 79,949 882

June 10.09 9.40 (0.69) 103,895 2,100

July 9.33 9.46 0.13 75,742 6,300

August 9.54 10.00 0.46 73,716 3,696

September 9.92 10.57 0.65 93,866 10,122

October 10.72 11.08 0.36 70,423 7,098

November 9.84 9.59 (0.25) 76,775 1,554

December 9.74 9.75 0.01 98,037 924 ——— ——— ——— ——— ———

Simple average 11.09 11.17 0.08 71,652 3,467

Range—low 8.57 8.77 (2.65)

Range—high 15.90 16.07 1.32

Standard deviation 2.00 2.05

% of average 18.0% 18.4%

F-statistic 0.0307

p-value 0.8615

1 Product pounds reported up to the price calculation date; may not be the same as the NASS final numbers. 2 Converted from the number of lots of cheese traded, assuming 42,000 pounds per lot.

50
51

Appendix III figure 1— Class III price and estimate using CME cash prices and NASS dry whey price

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

Estimated based on

CME cash prices

FMMO Class

III price
Appendix III table 2—NASS and CME cheese prices for calculating FMMO Class III prices

Cheese price (dollars/pound) Cheese (thousand pounds)

—————————————————————————— —————————————

CME pricer

over (under) NASS

Year Month NASS CME NASS survey1 CME2

2000 January 1.1517 1.1170 (0.0347) 69,472 1,050

February 1.1067 1.1160 0.0093 57,250 2,016

March 1.1093 1.1169 0.0076 62,402 1,554

April 1.1011 1.1051 0.0040 82,515 1,302

May 1.1022 1.1030 0.0008 66,086 1,764

June 1.1137 1.2157 0.1020 68,953 3,528

July 1.2189 1.1927 (0.0262) 73,395 5,502

August 1.1660 1.1966 0.0306 57,598 15,204

September 1.2315 1.2912 0.0597 38,282 13,566

October 1.1602 1.0390 (0.1212) 64,799 4,116

November 1.0245 1.0530 0.0285 45,446 2,352

December 1.0898 1.1276 0.0378 68,563 2,730

2001 January 1.1180 1.0905 (0.0275) 54,630 1,722

February 1.1467 1.2186 0.0719 66,638 588

March 1.2737 1.3275 0.0538 60,497 672

April 1.3423 1.4772 0.1349 81,140 2,478

May 1.5129 1.6144 0.1015 61,322 1,428

June 1.6211 1.6568 0.0357 67,577 2,562

July 1.6573 1.6705 0.0132 78,441 1,470

August 1.6693 1.7230 0.0537 58,529 2,142

September 1.7085 1.6911 (0.0174) 78,051 2,436

October 1.5591 1.2970 (0.2621) 66,398 5,166

November 1.2322 1.2759 0.0437 66,754 7,308

December 1.2762 1.2713 (0.0049) 78,793 4,452

2002 January 1.2922 1.3001 0.0079 77,283 1,386

February 1.2895 1.2045 (0.0850) 79,725 1,890

March 1.2087 1.2303 0.0216 98,145 714

April 1.2323 1.2596 0.0273 78,396 1,050

May 1.2359 1.1899 (0.0460) 79,949 882

June 1.1708 1.1037 (0.0671) 103,895 2,100

July 1.1004 1.1151 0.0147 75,742 6,300

August 1.1189 1.1635 0.0446 73,716 3,696

September 1.1438 1.2076 0.0638 93,866 10,122

October 1.2020 1.2381 0.0361 70,423 7,098

November 1.1111 1.0893 (0.0218) 76,775 1,554

December 1.1203 1.1225 0.0022 98,037 924 ——— ——— ——— ——— ———

Simple average 1.2477 1.2559 0.0082 71,652 3,467

Range—low 1.0245 1.0390 (0.2621)

Range—high 1.7085 1.7230 0.1349

Standard deviation 0.1851 0.1914

% of average 14.8% 15.2%

F-statistic 0.0336

p-value 0.8550

1 Product pounds reported up to the price calculation date; may not be the same as the NASS final numbers. 2 Converted from the number of lots of cheese traded, assuming 42,000 pounds per lot.

52
53

Appendix III figure 2— NASS and CME cheese prices for calculating FMMO Class III prices

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/pound

2.2000

2.1000

2.0000

1.9000

1.8000

1.7000

1.6000

1.5000

1.4000

1.3000

1.2000

1.1000

1.0000

0.9000

0.8000

CME cheese

price

NASS cheese price
Appendix III table 3—NASS and CME butter prices for calculating butterfat prices

Butter price (dollars/pound) Butter (thousand pounds)

—————————————————————————— —————————————

CME pricer

over (under) NASS

Year Month NASS CME NASS survey1 CME2

2000 January 0.8820 0.9232 0.0412 25,104 3,611

February 0.9002 0.9390 0.0388 20,674 3,113

March 0.9497 1.0364 0.0867 20,195 3,113

April 1.0449 1.1047 0.0598 23,405 3,362

May 1.1680 1.2728 0.1048 15,598 5,395

June 1.2725 1.2245 (0.0480) 10,423 5,271

July 1.1547 1.1788 0.0241 13,593 7,553

August 1.1520 1.1865 0.0345 11,231 8,051

September 1.1560 1.1678 0.0118 11,604 4,939

October 1.1344 1.1499 0.0155 17,692 3,860

November 1.4051 1.4088 0.0037 13,009 1,079

December 1.4698 1.3338 (0.1360) 18,370 1,204

2001 January 1.1725 1.2841 0.1116 21,280 1,245

February 1.3143 1.4341 0.1198 17,601 789

March 1.4942 1.5804 0.0862 20,188 1,868

April 1.7126 1.8701 0.1575 18,056 1,743

May 1.8527 1.8730 0.0203 14,828 2,573

June 1.9263 1.9686 0.0423 13,154 3,154

July 1.9094 1.8147 (0.0947) 14,080 5,727

August 1.9990 2.0808 0.0818 15,145 4,275

September 2.1198 1.8672 (0.2526) 20,413 3,569

October 1.4701 1.3898 (0.0803) 15,979 6,225

November 1.3040 1.3425 0.0385 20,453 2,822

December 1.2894 1.3002 0.0108 20,107 2,988

2002 January 1.3324 1.3160 (0.0164) 19,216 2,158

February 1.2480 1.2364 (0.0116) 19,706 1,203

March 1.2333 1.2363 0.0030 20,881 2,324

April 1.1720 1.1317 (0.0403) 20,296 3,071

May 1.0525 1.0480 (0.0045) 18,164 6,308

June 1.0343 1.0391 0.004 17,450 3,694

July 1.0112 1.0426 0.0314 14,058 2,781

August 0.9925 0.9715 (0.0210) 15,811 4,233

September 0.9431 0.9598 0.0167 25,889 8,259

October 0.9945 1.0249 0.0304 16,770 12,492

November 1.0107 1.0507 0.0400 15,950 10,085

December 1.0926 1.1260 0.0334 17,283 1,785 ——— ——— ——— ——— ———

Simple average 1.2881 1.3032 0.0151 17,602 4,053

Range—low 0.8820 0.9232 (0.2526)

Range—high 2.1198 2.0808 0.1575

Standard deviation 0.3309 0.3162

% of average 25.7% 24.3%

F-statistic 0.0393

p-value 0.8435

1 Product pounds reported up to the price calculation date; may not be the same as the NASS final numbers. 2 Converted from the number of lots of butter traded, assuming 41,500 pounds per lot.

54
55

Appendix III figure 3— NASS and CME butter prices for calculating butterfat prices

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/pound

2.2000

2.1000

2.0000

1.9000

1.8000

1.7000

1.6000

1.5000

1.4000

1.3000

1.2000

1.1000

1.0000

0.9000

0.8000

NASS butter price

CME butter price
Appendix III table 4—Class III price and estimate using simple average Class III futures price

Class III price (dollars/cwt)

—————————————————————————————

Estimated

using simple Estimated Milk volume

average CME price over (million pounds)

Class III futures (under) of contracts

Year Month FMMO price FMMO traded1

2000 January 10.05 10.09 0.04 37.8

February 9.54 9.67 0.13 130.0

March 9.54 9.64 0.10 30.2

April 9.41 9.49 0.08 31.8

May 9.37 9.48 0.11 25.4

June 9.46 9.59 0.13 78.2

July 10.66 10.63 (0.03) 69.0

August 10.13 10.12 (0.01) 56.4

September 10.76 10.73 (0.03) 67.0

October 10.02 10.08 0.06 139.4

November 8.57 8.70 0.13 46.8

December 9.37 9.29 (0.08) 46.4

2001 January 9.99 9.77 (0.22) 86.8

February 10.27 10.22 (0.05) 62.0

March 11.42 11.35 (0.07) 82.2

April 12.06 11.97 (0.09) 116.2

May 13.83 13.76 (0.07) 124.2

June 15.02 14.94 (0.08) 176.4

July 15.46 15.29 (0.17) 95.4

August 15.55 15.48 (0.07) 65.6

September 15.90 15.81 (0.09) 59.2

October 14.60 14.34 (0.26) 287.8

November 11.31 11.25 (0.06) 38.2

December 11.80 11.73 (0.07) 63.0

2002 January 11.87 11.79 (0.08) 81.2

February 11.63 11.70 0.07 117.8

March 10.65 10.63 (0.02) 66.2

April 10.85 10.88 0.03 162.2

May 10.82 10.85 0.03 168.6

June 10.09 10.27 0.18 50.2

July 9.33 9.36 0.03 74.6

August 9.54 9.55 0.01 268.2

September 9.92 9.86 (0.06) 49.2

October 10.72 10.64 (0.08) 75.8

November 9.84 9.83 (0.01) 115.8

December 9.74 9.81 0.07 180.8 ——— ——— ——— ———

Simple average 11.09 11.07 (0.02) 95.2

Range—low 8.57 8.70 (0.26)

Range—high 15.90 15.81 0.18

Standard deviation 2.00 1.94

% of average 18.0% 17.5%

F-statistic 0.0009

p-value 0.9762

1 Each contract is 200,000 pounds of milk.

56
57

Appendix III figure 4— Class III price and estimate using simple average Class III futures price

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO Class

III price

Estimated using simple average CME Class III futures price
58

Appendix III table 5—Class III price and estimate using weighted average Class III futures price

Class III price (dollars/cwt)

—————————————————————————————

Estimated

using weighted Estimated Milk volume

average CME price over (million pounds)

Class III futures (under) of contracts

Year Month FMMO price1 FMMO traded2

2000 January 10.05 10.07 0.02 37.8

February 9.54 9.74 0.20 130.0

March 9.54 9.68 0.14 30.2

April 9.41 9.53 0.12 31.8

May 9.37 9.50 0.13 25.4

June 9.46 9.64 0.18 78.2

July 10.66 10.67 0.01 69.0

August 10.13 10.14 0.01 56.4

September 10.76 10.72 (0.04) 67.0

October 10.02 10.14 0.12 139.4

November 8.57 8.73 0.16 46.8

December 9.37 9.29 (0.08) 46.4

2001 January 9.99 9.75 (0.24) 86.8

February 10.27 10.20 (0.07) 62.0

March 11.42 11.32 (0.10) 82.2

April 12.06 11.90 (0.16) 116.2

May 13.83 13.76 (0.07) 124.2

June 15.02 14.92 (0.10) 176.4

July 15.46 15.20 (0.26) 95.4

August 15.55 15.41 (0.14) 65.6

September 15.90 15.79 (0.11) 59.2

October 14.60 14.16 (0.44) 287.8

November 11.31 11.18 (0.13) 38.2

December 11.80 11.73 (0.07) 63.0

2002 January 11.87 11.74 (0.13) 81.2

February 11.63 11.72 0.09 117.8

March 10.65 10.62 (0.03) 66.2

April 10.85 10.89 0.04 162.2

May 10.82 10.90 0.08 168.6

June 10.09 10.27 0.18 50.2

July 9.33 9.39 0.06 74.6

August 9.54 9.54 - 268.2

September 9.92 9.88 (0.04) 49.2

October 10.72 10.62 (0.10) 75.8

November 9.84 9.70 (0.14) 115.8

December 9.74 9.84 0.10 180.8 ——— ——— ——— ———

Simple average 11.09 11.06 (0.03) 95.2

Range—low 8.57 8.73 (0.44)

Range—high 15.90 15.79 0.20

Standard deviation 2.00 1.91

% of average 18.0% 17.3%

F-statistic 0.0024

p-value 0.9612

1 Weighted by volume traded.

2 Each contract is 200,000 pounds of milk.
59

Appendix III figure 5— Class III price and estimate using weighted average Class III futures price

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO Class

III price

Estimated using weighted average

CME Class III futures price
Appendix III table 6—Class IV price and estimate using CME cash butter price and NASS nonfatdry milk price

Class IV price (dollars/cwt) Butter (thousand pounds)

—————————————————————————— —————————————

Estimated Estimated

based on prive over

CME cash (under) NASS

Year Month FMMO butter price FMMO survery1 CME2

2000 January 10.73 10.90 0.17 25,104 3,611

February 10.80 10.96 0.16 20,674 3,113

March 11.00 11.37 0.37 20,195 3,113

April 11.38 11.64 0.26 23,405 3,362

May 11.91 12.35 0.44 15,598 5,395

June 12.38 12.17 (0.21) 10,423 5,271

July 11.87 11.98 0.11 13,593 7,553

August 11.87 12.02 0.15 11,231 8,051

September 11.94 11.99 0.05 11,604 4,939

October 11.81 11.88 0.07 17,692 3,860

November 13.00 13.01 0.01 13,009 1,079

December 13.27 12.69 (0.58) 18,370 1,204

2001 January 12.13 12.60 0.47 21,280 1,245

February 12.70 13.22 0.52 17,601 789

March 13.46 13.83 0.37 20,188 1,868

April 14.41 15.09 0.68 18,056 1,743

May 15.04 15.13 0.09 14,828 2,573

June 15.33 15.51 0.18 13,154 3,154

July 14.81 14.41 (0.40) 14,080 5,727

August 15.06 15.40 0.34 15,145 4,275

September 15.59 14.51 (1.08) 20,413 3,569

October 12.77 12.42 (0.35) 15,979 6,225

November 11.97 12.14 0.17 20,453 2,822

December 11.79 11.83 0.04 20,107 2,988

2002 January 11.93 11.87 (0.06) 19,216 2,158

February 11.54 11.49 (0.05) 19,706 1,203

March 11.42 11.44 0.02 20,881 2,324

April 11.09 10.92 (0.17) 20,296 3,071

May 10.57 10.56 (0.01) 18,164 6,308

June 10.52 10.55 0.03 17,450 3,694

July 10.45 10.59 0.14 14,058 2,781

August 10.41 10.32 (0.09) 15,811 4,233

September 10.22 10.29 0.07 25,889 8,259

October 10.50 10.63 0.13 16,770 12,492

November 10.58 10.75 0.17 15,950 10,085

December 10.49 10.64 0.15 17,283 1,785 ——— ——— ——— ——— ———

Simple average 12.13 12.20 0.07 17,602 4,053

Range—low 10.22 10.29 (1.08)

Range—high 15.59 15.51 0.68

Standard deviation 1.57 1.54

% of average 12.9% 12.6%

F-statistic 0.0320

p-value 0.8586

1 Product pounds reported up to the price calculation date; may not be the same as the NASS final numbers. 2 Converted from the number of lots of butter traded, assuming 41,500 pounds per lot.

60
61

Appendix III figure 6— Class IV price and estimate using CME cash butter price and NASS nonfat dry milk

price

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO Class

IV price

Estimated based

on CME cash butter

price
62

Appendix III table 7—Class IV price and estimate using simple average Class IV futures price

Class lV price (dollars/cwt)

—————————————————————————————

Estimated using Estimated Milk volume

simple average price over (million pounds)

CME Class IV (under) of contracts

Year Month FMMO futures price FMMO traded1

2000 January

February

March

April

May

June

July

August

September

October 11.81 11.67 (0.14) 1.0

November 13.00 12.56 (0.44) 38.4

December 13.27 13.38 0.11 45.0

2001 January 12.13 12.08 (0.05) 9.2

February 12.70 12.68 (0.02) 19.2

March 13.46 13.42 (0.04) 6.2

April 14.41 14.39 (0.02) 15.0

May 15.04 14.88 (0.16) 5.8

June 15.33 15.15 (0.18) 5.2

July 14.81 14.86 0.05 22.0

August 15.06 14.92 (0.14) 6.4

September 15.59 15.76 0.17 0.2

October 12.77 13.25 0.48 0.4

November 11.97 12.03 0.06 4.6

December 11.79 11.93 0.14 -

2002 January 11.93 12.06 0.13 0.4

February 11.54 11.75 0.21 1.6

March 11.42 11.54 0.12 9.2

April 11.09 11.30 0.21 8.0

May 10.57 10.70 0.13 20.4

June 10.52 10.58 0.06 11.0

July 10.45 10.50 0.05 4.0

August 10.41 10.55 0.14 5.0

September 10.22 10.39 0.17 -

October 10.50 10.30 (0.20) -

November 10.58 10.50 (0.08) -

December 10.49 10.55 0.06 -

Simple average 12.33 12.36 0.03 8.8

Range—low 10.22 10.30 (0.44)

Range—high 15.59 15.76 0.48

Standard deviation 1.75 1.71

% of average 14.2% 13.8%

F-statistic 0.0042

p-value 0.9489

1 Each contract is 200,000 pounds of milk.
63

Appendix III figure 7— Class IV price and estimate using simple average Class IV futures price

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO Class

IV price

Estimated using simple average

CME Class IV futures price
Appendix III table 8—Class IV price and estimate using weighted average Class IV futures price

Class lV price (dollars/cwt)

—————————————————————————————

Estimated using

weighted Estimated Milk volume

average CME price over (million pounds)

Class IV futures (under) of contracts

Year Month FMMO price1 FMMO traded2

2000 January

February

March

April

May

June

July

August

September

October 11.81 11.70 (0.11) 1.0

November 13.00 12.50 (0.50) 38.4

December 13.27 13.39 0.12 45.0

2001 January 12.13 12.07 (0.06) 9.2

February 12.70 12.75 0.05 19.2

March 13.46 13.40 (0.06) 6.2

April 14.41 14.43 0.02 15.0

May 15.04 14.74 (0.30) 5.8

June 15.33 15.20 (0.13) 5.2

July 14.81 15.06 0.25 22.0

August 15.06 14.81 (0.25) 6.4

September 15.59 15.80 0.21 0.2

October 12.77 13.25 0.48 0.4

November 11.97 12.14 0.17 4.6

December3 11.79 11.93 0.14 -

2002 January 11.93 12.10 0.17 0.4

February 11.54 11.71 0.17 1.6

March 11.42 11.58 0.16 9.2

April 11.09 11.33 0.24 8.0

May 10.57 10.75 0.18 20.4

June 10.52 10.66 0.14 11.0

July 10.45 10.51 0.06 4.0

August 10.41 10.71 0.30 5.0

September3 10.22 10.38 0.16 -

October3 10.50 10.31 (0.19) -

November3 10.58 10.50 (0.08) -

December3 10.49 10.55 0.06 -

____ ____ ___ ___

Simple average 12.33 12.38 0.05 8.8

Range—low 10.22 10.31 (0.50)

Range—high 15.59 15.80 0.48

Standard deviation 1.75 1.71

% of average 14.2% 13.8%

F-statistic 0.0122

p-value 0.9126

1 Weighted by volume traded.

2 Each contract is 200,000 pounds of milk.

3 No weighted average price, because no contract was traded; use simple average instead.

64
65

Appendix III figure 8— Class IV price and estimate using weighted average Class IV futures price

JF MAM J JA SON DJ FMAM J J A SOND JF M AM J J AS OND

Month

2000 2001 2002

Dollars/cwt

17.00

16.00

15.00

14.00

13.00

12.00

11.00

10.00

9.00

8.00

FMMO Class

IV price

Estimated using weighted average CME Class IV futures price
U.S. Department of Agriculture

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