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UW-Madison Economist Says Negative Producer Price Differentials May Finally Be Under Control

Thursday, September 10th, 2020 -- 9:23 AM

(Wisconsin Ag Connection) -A University of Wisconsin-Madison economist says those negative Producer Price Differentials that have been pulling down the prices farmers are paid for their Class III milk may finally be under control.

Dr. Mark Stephenson, who serves as the director of the Wisconsin Center for Dairy Profitability, said on Tuesday's episode of the Dairy Signal that the negative PPDs will be around 40-cents in the next month. That's opposed to the $3 to $4 levels seen during the past summer. Stephenson's presentation went into detail on how the PPDs are determined based on the spread of the various milk class prices in a given month. In summary, he said when milk is pooled, the PPD becomes negative during scenarios where the Class III price rises too fast (as it did in June and July of 2020) or when the spread between Classes I, III and IV prices gets wider.

However, he points out that there's no rule book for price forecasting during a year that has seen a pandemic, a controversial presidential election and swinging markets. And he adds that one of the greatest lessons learned in 2020 is that risk management is important. Dr. Stephenson said fortunately, a lot of farmers are going to have more high-quality feed available going into the winter, which will help reduce input costs.

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