Most years, we'd close out a member letter like this by saying "watch the spring flush." This year we're saying: watch the spread. Class III and Class IV milk price futures ended December further apart than they started it, and for members who buy on cheese-block formulas rather than straight milk price, that gap is the thing that actually moves your invoice.
Here's the short version, without pretending we can forecast better than the market itself. Class III, the price tied most closely to cheese, has been trading below Class IV, the price tied to butter and powder, for much of the back half of the year. That's a reversal from the pattern a lot of members built their 2021 budgets around. If your creamery buys milk on a component basis, or if your supply agreement references either class directly, this is the line to read before you finalize anything for January.
Why the spread matters more than the level
A single number — "milk is up" or "milk is down" — tells you less than it used to. What's changed since the pandemic reset federal order pricing rules is that the relationship between the two classes moved, not just the absolute levels. A processor buying primarily for cheese production is facing a different cost curve than one buying for butter-powder, even when both are nominally "dairy manufacturers." If your creamery does both — say, a whey stream that gets sold into powder — you're exposed to both classes at once, and a spread like this can quietly change your margin on the whey side even if your cheese-side numbers look steady. Weekly federal dairy market reporting through early December described cheesemaking demand as steady and active across most regions, which is the kind of detail that's easy to miss if you're only tracking the headline futures number.
We'd rather members catch this in their own spreadsheets in January than get surprised by it in March. If you haven't already, pull your last two quarters of milk-cost line items and separate what you're actually paying by class reference, not just by total. A few members told us on last month's pricing webinar that this exercise is what finally explained a margin gap they couldn't otherwise trace.
What we're watching into the new year
National cheese production for the year came in essentially flat versus 2020 — Italian-style output actually ticked down slightly year over year, while American-style cheese was up on a monthly basis heading into the holidays. That's a market working through steady demand rather than a shortage or a glut, which is a reasonably good place to plan from. It doesn't mean prices sit still; it means the swings are more likely to come from the class spread than from a straightforward supply shock.
One more thing worth flagging as you head into 2022: several members mentioned staffing gaps around the holidays this year, tied to the wave of respiratory illness moving through communities in December. If your plant or your retail counter is running short-handed into the new year, that's worth building into your January production schedule now rather than discovering it the week you need every hand on deck. A tighter crew changes how much cushion you have if a pricing surprise also lands.
If you want a second set of eyes on how the class spread is showing up in your own numbers, the Membership & Outreach Committee has been fielding these questions individually this month — reach out through your member portal and we'll get you to the right person.
The International Cheese Federation (ICF) and More Cheese are entirely fictional. This post is demonstration content created for MemberJunction. All people, organizations, events, courses, certifications, figures, and quotations in it are invented, and nothing here represents a real association, a real business, a real person, or real professional advice.