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A Fat Milk Check

By: Kristen Gallagher

When it comes to milk revenue, components are king. Growing up, I remember how closely my parents would watch the protein and fat yield in our milk check. Dairy processors and farmers know that the nutrient profile of the milk is valuable but the question is, exactly how valuable?

Figure 1 Average butterfat test of producer receipts Northeast Federal Milk Marketing Order 1

In the July edition of Hoard’s Dairyman, the editorial comments focused on how demand for  milk  fat  has revived after a half century of little consumer preference. About 14% of skim milk is exported by the U.S., while only 2% of milk fat will leave our borders. Americans are using milk fat again, and with that increase in demand, U.S. dairy farmers are increasing the milk fat percent in the milk shipped out the door. We’re seeing a similar trend here in the Northeast Federal Milk Marketing Order 1.  Over  the last 20 years there’s been an increase in overall butterfat component price (Figure 1) or the increase in fat value, and also an increase in the fat percent coming from the farm (Figure 2). This serves a basic rule of economics: As you increase price, an increase in supply will shortly follow.

Figure 2 Average price per pound of butterfat in Northeast Federal Milk Marketing Order 1

Having more milk fat around isn’t just an interesting trend, it’s extremely influential in determining the Class III milk price and mail box price. Class III milk is a “bundle” of the butterfat price, the protein price, and other solids price. Here in the Northeast Milk Marketing Order, we’re lucky to have a slight majority of milk receipts coming from Class I at 29.1%. But the next largest class supplied here is Class III at 27.2% of total milk receipts. Class III milk is also very important in determining the Statistical Uniform Price which determines the value of a hundred weight (cwt) across a federal order. The Statistical Uniform Price can also be called the “Total Blend Price” and is the Class III price added to the producer price differential which varies based on location to Boston, MA. For July 2019, the Class III price was $17.55. If you were a farmer that shipped to Syracuse, NY, your producer price differential would be $0.53. Adding the Class III price of $17.55 to the producer price differential of $0.53, the value of milk at 3.5% fat for that producer in Syracuse is $18.03/cwt (without any other cooperative deductions or quality bonuses). The producer price differentials will change based on the location your milk is shipped to.

Figure 3 Average price per pound of protein in Northeast Federal Milk Marketing Order 1

As any dairy farmer knows, if you can increase the fat percent in your own bulk tank, you increase the total pounds of 3.5% milk fat, increasing your revenue. The same idea works for increasing the protein percent in milk, but at the moment, protein really doesn’t have the same consistently high value that fat has had over the past decade (Figure 3). The Class III prices are increasing (Figure 4) as the value of milk fat is rapidly increasing and the value of protein has remained  stagnant. Even with the static value   of protein, Northeast farmers have slowly increased the protein shipped off farm, but not to the extent in which we have increased milk fat. So at this time, fat remains the driver for your Class III prices and the milk price dairy farmers should be monitoring. There are many management tools that are being developed to better manage fat. Ask your nutritionist or milk co-op if there are tools available for your farm to better manage milk fat.

Figure 4 Class III Milk Price for milk containing 3.5% butterfat in Northeast Federal
Milk Marketing Order 1

Source: WH Miner Institute

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