By: Kristen Gallagher email@example.com
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?
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.
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.
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.
Source: WH Miner Institute