Volatility in federal milk pricing and widening spreads between Class III and Class IV milk prices are once again putting dairy producers on alert as milk de-pooling activity intensifies across several Federal Milk Marketing Orders (FMMOs).
Milk de-pooling occurs when handlers voluntarily remove milk used for manufacturing—primarily Class II, III, or IV milk—from the federal revenue pool. While Class I beverage milk must remain pooled, processors of cheese, butter, powder, and other manufactured products can choose to leave the pool when manufacturing values exceed the uniform blend price.
The current market environment has created one of the most extreme incentives for de-pooling in recent history. As of early May 2026, Class IV futures for May and June were trading roughly $5 per hundredweight above Class III futures. Industry analysts note in June 2020, when USDA’s Food Box program was active, Class III futures were significantly higher than Class IV contracts by $8.14/cwt., but the current difference between Class IV and Class III is the highest ever. Historically de-pooling activity accelerates whenever one class of milk dramatically outperforms another. In 2020, pandemic-related government food purchases caused cheese prices to surge, pushing Class III prices more than $8 per hundredweight above Class IV. That spike triggered significant de-pooling and led to deeply negative Producer Price Differentials (PPDs) for many dairy farmers.
Today’s market rally is being driven largely by strong nonfat dry milk and Class IV pricing. Many cooperatives and processors may find it financially advantageous to de-pool milk to capture the full Class IV value rather than share revenues through the blended FMMO pool.
For dairy producers, the consequences can be significant. While de-pooling benefits processors by allowing them to avoid paying large sums into the pool, it often reduces the blend price they pay to farmers who remain in the pool. Negative PPDs may reappear on milk checks, particularly in cheese-heavy orders in the Upper Midwest and Central regions.
The Central FMMO region’s March 2026 pooling data already illustrates the impact. Total pooled milk volume fell to 1.35 billion pounds, compared to more than 1.50 billion pounds during March 2025. At the same time, Class III utilization jumped to 48.2 percent while Class IV utilization dropped to just 12.0 percent, reflecting aggressive de-pooling by Class IV manufacturers.
Fluid milk (Class I) processors face additional pressure because they cannot de-pool and must pay the higher of the advanced Class III or Class IV skim milk pricing factors. Those higher costs may eventually translate into increased retail milk prices for consumers.
USDA’s upcoming advanced pricing announcements and All-Milk price reports later this month will be closely watched as producers evaluate the growing impact of de-pooling on milk checks, processor economics, and overall dairy market profitability.
Fred M. Hall
Northwest Iowa Extension Dairy Specialist
Iowa State University Extension
400 Central Ave., NW, Suite 700
Orange City, Iowa 51041
Ph: 712.737.4230
