When butterfat premiums turned to penalties, we created an $8 billion problem nobody saw coming

EXECUTIVE SUMMARY: What farmers are discovering right now is that a decade of breeding for maximum butterfat has created a fundamental mismatch with processor needs—our national average of 0.77 protein-to-fat ratio falls short of the 0.80 that cheese plants require for efficient production. According to CoBank’s September analysis and USDA data, this $300 difference translates to $800-$ 1,200 daily in standardization costs for mid-sized plants, expenses that eventually flow back to producer milk checks. The timing couldn’t be worse, with $8 billion in new cheese capacity coming online through 2028, all designed for balanced milk production that we’re not meeting. Research from Penn State and Michigan State shows that high-oleic soybeans can help rebalance components while actually improving feed efficiency, saving operations $50-70 per hundredweight. Smart producers are already repositioning—shifting genetics toward protein (bulls with +60 PTA protein, under 1.25:1 fat-to-protein ratios), implementing proven nutritional strategies, and protecting themselves with risk management tools that could save a 200-cow operation $67,500 when Class III drops just $3. Here’s what this means for your operation: the genetics decisions you make this month lock in production patterns through 2028, making immediate action not just advisable but essential for survival in tomorrow’s component-focused market.

You know what’s fascinating about dairy markets right now? We’re watching butter trade at $1.65 while cheese sits at $1.7375 on the CME, and that inversion tells you everything about where we’ve ended up. For those of us who’ve been in this business long enough to remember when butterfat was gold, this feels like watching the world turn upside down.

I’ve been tracking these markets for about twenty years, and this pattern we’re seeing—three months into it now as of October—isn’t just unusual. It’s the market trying to tell us something we probably don’t want to hear: we got too good at producing butterfat, and now we’re all paying for it.

Here’s what really strikes me. We spent the last decade building this incredible genetic and nutritional system to maximize butterfat production. Every decision made sense at the time. Every bull selection, every ration adjustment, every breeding choice followed the economics perfectly. And yet somehow, all those right decisions added up to a wrong outcome.

What That 0.77 Number Really Means for Your Operation

Here’s the thing about protein-to-fat ratios that has transitioned from textbook concepts to real-world problems. Your cheese plant—and let’s be honest, with USDA data showing 90% of our milk going to manufacturing, that’s probably where yours ends up—they run best with milk at about a 0.80 ratio. Cornell’s Dave Barbano figured this out decades ago, and it’s held true ever since.

What really caught my attention is this CoBank analysis from September—Corey Geiger put together a report called “Soaring demand for dairy foods fueled a US butterfat boom,” and buried in there is our current national average: 0.77, according to the USDA’s latest statistics. Now, three hundred doesn’t sound like much, right? But the impact on operations is huge.

I was visiting with some folks at a major cheese plant in Green Bay last week. They’re spending—get this—$800 to $1,200 every single day just standardizing milk. Either they’re skimming off cream that nobody really wants right now, or they’re adding milk protein concentrate, which is running $3.50 to $4.50 per pound, according to the latest USDA Dairy Market News reports.

Consider that for a mid-sized plant processing 100,000 pounds daily… you’re looking at $300,000 to $440,000 a year in extra costs. And where do you think that money eventually comes from? Yes, it finds its way back to our milk checks; it just takes about six months to work through the system. As one Wisconsin cheese maker explained to me, “We’re not asking for miracles, just milk we can efficiently turn into cheese without bleeding money on standardization.”

What’s really eye-opening—and the plant folks explained this while we watched tankers unloading—is that when they produce mozzarella, they need to increase protein from our current average of 3.23% (according to USDA NASS September data) to about 3.5% for optimal yields. That’s 300 pounds of MPC-80 for every 100,000 pounds of milk. At today’s prices? Over a thousand bucks daily.

How Sound Individual Decisions Created This Collective Challenge

Examining Federal Order pricing from 2015 through last year, butterfat consistently commanded premiums over protein in eight out of nine years. Of course, we bred for fat! I mean, when you see a Select Sires bull with +80 pounds of butterfat PTA and fat paying nearly three dollars… that’s just following the money.

Kent Weigel from the University of Wisconsin’s dairy science department gave this fascinating presentation at the Dairy Cattle Reproduction Council meeting in April. The genetic progress we’ve made is remarkable—maybe too remarkable. Here’s the challenge: those bulls everyone was using in 2020 and ’21 when fat prices were golden? Their daughters are just entering the milking string now. And that April base change from USDA’s Animal Genomics and Improvement Laboratory, rolling back fat values by 45 pounds—that’s the biggest adjustment I can remember. It’s basically the industry saying, “okay, we might’ve overdone this a bit.”

CoBank’s analysis suggests we could see butterfat approaching 5% within ten years if trends continue. Now, that’s on the high end of projections, but even if we hit 4.6% or 4.7%, and protein reaches 3.4%, well, that’s potentially a 0.68 ratio. Here’s what every breeder needs to understand: bulls you pick today won’t have daughters really producing until 2028, maybe ’29.

I know a producer near Eau Claire who has been maintaining balanced components throughout this whole process—3.85% fat, 3.20% protein, utilizing diverse genetics. “Everyone thought I was leaving money on the table, breeding for balance,” he told me. “Now my milk’s exactly what processors want, and I’m getting premiums while others are scrambling.”

According to reports from Wisconsin’s Dairy Business Association, several operations in the Central Valley, California, began shifting toward protein-focused genetics three years ago, anticipating these market changes. These producers saw the new cheese plants coming online and adjusted early. Now they’re shipping exactly what processors like Hilmar want, while others are still catching up.

Learning from Our Northern Neighbors

Alright, so comparing us to Canada usually starts some heated discussions, but stay with me here. According to the Ontario Dairy Farmers’ quota exchange, they’re paying between $24,000 and $26,000 per cow just for the right to produce. Sounds crazy, doesn’t it?

But here’s what’s worth considering. Statistics Canada’s 2024 farm survey (released this March) shows their average dairy operation clearing $246,000 Canadian, and through the Canadian Dairy Commission’s cost-of-production formula, they know their milk price twelve months out. Pretty nice for planning, right?

What I find really interesting is how they handle components. When the solids-non-fat to butterfat ratio deviates outside its target range of 2.0 to 2.3, payment adjustments occur within one to two months, as per CDC policy. No waiting, no hoping. You make unbalanced milk, you see it in your check. Simple as that.

I know a producer near Guelph who put it this way: “Sure, we pay a lot for quota, but I can make five-year plans knowing prices won’t swing 30% in six months.” Now, I’m not saying we should go to supply management—that ship sailed long ago. But watching our neighbors have that stability, while Cornell’s preliminary October data suggests we might go from $24 to $19 per gallon of milk, does make you think.

The key takeaway here is the importance of consistency and rapid feedback. But before we all rush toward quick fixes, trying to achieve that consistency, let me share what can go wrong when you try to force component changes too fast.

Why Quick Component Fixes Can Be Financially Devastating

I’ve had several nutritionists call lately, asking about using a diet to reduce milk fat quickly. And look, I understand the temptation with these component prices.

But let me share what the research actually shows. Lance Baumgard’s team at Iowa State has published extensively on this in the Journal of Dairy Science over the past few years. When you drop forage NDF below 22% and increase starch to shift fermentation, you will indeed drop fat. You’ll also wreck rumen function.

There’s this study from Bonfatti’s group in Italy (published in JDS this year)—really sobering stuff. Farms with about 33% of cows showing diet-induced milk fat depression didn’t just lose out on components. Energy-corrected milk tanked, dry matter intake dropped by 15 to 20 percent, and then health problems started to cascade.

A respected dairyman I know in Cortland County tried this aggressive approach in 2023. Skilled operator with 30 years of experience in the industry. Four months later? Lameness everywhere, conception rates down twelve points, vet bills through the roof. He calculated over $400 per cow in losses trying to save a total of maybe $50,000 on components. “Expensive lesson,” as he put it to me.

Greg Penner, from the University of Saskatchewan, has been documenting the costs of subacute ruminal acidosis to our industry—we’re talking $500 million to $1 billion annually across North America, according to his latest estimates. That’s real money lost to poor rumen health.

High Oleic Soybeans: A Solution That Actually Works

Now here’s something encouraging that doesn’t involve destroying your cows’ rumens. Kevin Harvatine at Penn State has been publishing some compelling work on high-oleic soybeans in the Journal of Dairy Science over the last few years.

Regular soybeans are about 52-55% linoleic acid—that’s a polyunsaturated fat that basically overwhelms your rumen bugs. When they can’t process it fast enough, they shift metabolic pathways and start making compounds that shut down fat synthesis in the udder. High oleic varieties flip that—they’re 70-80% oleic acid, which is monounsaturated. The rumen handles it just fine.

Penn State’s recent work (Lopes and colleagues published in JDS this year) shows a 0.2-point bump in milkfat, plus a 17% reduction in those problematic trans fats. However, what really caught my attention was Adam Lock’s research at Michigan State, also featured in JDS this year. They saw 10 pounds more milk when feeding these beans at about 16% of the diet, and—here’s the kicker—cows ate 8 kilos less dry matter. That’s efficiency you can take to the bank.

I recently visited a producer in Pennsylvania who has been using these for about eighteen months. Started at 5 pounds per cow, now he’s up to 7.5. Bought a used roaster for around $65,000, figures he’s saving about $125 per cow annually between better components and feed efficiency. Now, your situation might be different—California folks have those water costs, Texas operations deal with heat stress, Upper Midwest producers with heavy corn silage programs might see different responses—but for many of us, this could really work.

Northeast producers using seasonal grazing systems may need to adjust feeding rates seasonally—one Vermont producer I know reduces it to 4 pounds during peak pasture season and then increases it to 7 pounds in winter. Small operations under 100 cows can access custom roasting through cooperatives in many regions. I’m still trying to determine the optimal approach for organic operations, but early reports from a few farms in New York are promising.

The key is roasting them right. You want the PDI—protein dispersibility index—to be between 9 and 11. Lower values indicate that you’ve damaged the protein; higher values indicate that you haven’t removed the antinutritional components. Worth testing when you’re getting started.

Yeah, they cost more—about 10-15 cents per pound premium according to USDA grain market reports. So at 7 pounds daily, that’s 70 cents to $1.05 extra per cow. However, when you factor in cutting palm fat, reducing some bypass protein, and that efficiency gain, most individuals tracking their results are saving $ 0.50 to $0.70 per hundredweight overall, according to University of Illinois Extension data.

Three Things You Can Do This Month

I spent a couple of days at World Dairy Expo last week, and the same three strategies kept coming up from producers who are making this work.

First—and this is crucial—fix your genetics now. Every month you wait is another group of heifers that’ll be milking the wrong stuff in 2028. Look for bulls with a protein PTA of over 60 pounds, but keep the fat-to-protein ratio under 1.25:1. The AI companies all have this information readily available through their selection programs.

Here’s something Gerd Bittante’s group at the University of Padova just published (in JDS this year)—those DGAT1 genotypes matter. The K version favors fat, the A version favors protein. If you’ve been using only K/K bulls, consider mixing in some A/A or A/K genetics. It’s about balance.

Second, get some high oleic beans lined up. Don’t wait for next year’s crop prices to settle. The research shows benefits kick in within about three weeks. If you’re a smaller operation, consider a custom roaster. Alternatively, if you’re milking 500-plus cows, consider investing in your own equipment.

Third—and I know nobody wants to spend money when things are tight—but get some risk protection. The USDA’s Dairy Revenue Protection program, forward contracts, and something. We’re seeing $5-6 swings month-to-month on Class III, according to CME data. A 200-cow operation protecting half their milk at $21? If we drop to $18, that’s $67,500 saved. That’s not gambling, that’s just smart business at this point.

The Processing Expansion Nobody’s Talking About

Here’s what should have everyone’s attention. The USDA’s Economic Research Service September report states that $8 billion in new cheese capacity is expected to come online through 2028. These aren’t little artisan shops—these are massive, automated plants designed for milk with 0.80 protein-to-fat ratios.

What happens when plants built for balanced milk get our 0.75-0.77 ratio milk? I see three possibilities, and none are great for us.

Plants might pay big premiums for balanced milk—Hilmar Cheese in California’s already offering an extra fifty cents per hundredweight, according to their October producer letter for high-protein, low-fat milk. That creates two classes of producers.

Or processors invest millions in more standardization equipment, costs that eventually come back to us.

Or—and the USDA Foreign Agricultural Service September data shows this is already happening with MPC imports up 40% year-over-year—they just bring in more protein from overseas.

The timing’s terrible. Heifers freshening today were conceived when fat was king. We won’t see genetically balanced cows in large numbers until 2028 or 2029. That’s a big gap. Time will tell if the industry can bridge it without major disruption, but I’m not optimistic.

Why Export Markets Won’t Save Us

People often suggest exports will save us, but that thinking ignores the grim reality of international price disparity. Here’s what the data actually shows.

The USDA’s Foreign Agricultural Service October data show that we’re selling butter internationally at $2.48 per kilogram. EU’s getting $3.56, New Zealand’s at $3.42. We’re essentially offering a dollar-plus discount per pound. Yeah, butter exports are up 150% year-to-date through September, but that’s because we’re desperate and everyone knows it.

Traders in Chicago tell me this export valve could close quickly if global supplies tighten or the dollar strengthens. And then what? The USDA NASS reports a cold storage capacity of approximately 300 million pounds. We’re already at 280 million as of September. If storage fills and exports cease, butter prices could drop significantly below current levels.

For perspective, Brendan Haley at Dalhousie University documented that Canada disposed of approximately 300 million liters between 2020 and 2023, exceeding quotas. We might face similar choices, just through price signals rather than regulations.

Building Operations That Can Handle Whatever Comes

What I’m realizing—and this has taken me a while to really grasp—is that chasing maximum anything is probably a trap. Albert De Vries at the University of Florida ran these simulations (published in JDS this year) showing farms breeding for extremes face about 40% more income volatility than balanced operations.

The folks doing well aren’t necessarily those with the highest components or the most production. They’re maintaining a sustainable target of approximately 3.85% fat and 3.20% protein, using diverse genetics, incorporating innovations like high-oleic beans, and focusing on income over feed cost rather than gross components.

There’s an important concept that the University of Illinois Extension consistently emphasizes: the pounds of energy-corrected milk per pound of feed matter are more significant than the percentages. Their data shows that cows weighing 90 pounds at 3.8% fat often outperform those weighing 85 pounds at 4.2% fat, in terms of profitability. We often become so focused on percentages that we forget about efficiency. I’ve noticed that operations that track feed efficiency closely tend to weather these component price swings better than those that chase maximum yields.

The Uncomfortable Truth We’re All Facing

Take a step back and consider the entire situation. Every farm that bred for maximum butterfat based on 2015-2023 prices made completely rational decisions. And yet collectively, we’ve created this market challenge.

We had amazing tools—genomic selection that has doubled genetic progress, according to the USDA’s Animal Genomics and Improvement Laboratory, sophisticated nutrition programs, and efficient processing. What we lacked were feedback mechanisms connecting individual decisions to system needs.

I know several Ontario producers, and yeah, they pay huge quota costs. But as one told me, “We can’t chase maximums, so we focus on consistency.” With that $246,000 average net income from Statistics Canada and stability, there’s something to consider.

Where We Go from Here: Your Action Plan

This protein premium—$2.71 versus $2.19 for fat in recent Federal Order pricing—it won’t last forever. History suggests maybe five to seven years. Smart money’s positioning for 2027-2030, when those new cheese plants really need milk, but not betting everything on extreme protein either.

What works is balance. Breed for 0.78-0.82 ratios. Feed for health and efficiency, not maximum components. And protect yourself against volatility that is now a natural part of the business.

The hard reality is, in a system where genetics takes years to change but prices shift monthly, complete freedom to optimize might actually be freedom to undermine our own markets. Canadian producers traded some freedom for stability, and looking at projected milk prices… stability has value.

You can learn this now—that balance beats extremes, that yesterday’s optimization creates tomorrow’s problems—or learn it the hard way. But decide soon. Every breeding decision you delay locks in 2028 production patterns.

Here’s your immediate action plan: This week, pull your sire lineup and shift toward protein balance. Next week, please call about high-oleic soybean sourcing. Before the month’s end, get risk management coverage on at least 30% of your production. These are no longer suggestions—they’re survival strategies.

That’s the paradox, isn’t it? We’re always fighting the last war, breeding for the last shortage, creating the next surplus. Perhaps it’s time to think more long-term about what actually creates sustainable value. Drive around and count the “For Sale” signs if you want to see where the old way’s taking us.

The operations that’ll thrive aren’t those with perfect timing or maximum components. They’re the ones who understand that in complex systems like dairy, sustainable balance often beats extreme optimization. And that might be the most valuable lesson from this whole butterfat situation—one worth considering as we make decisions affecting production years ahead.

The choice is yours. Make it count. 

KEY TAKEAWAYS

• Immediate genetics shift pays off: Switch to bulls with protein PTA over +60 pounds and fat-to-protein ratios under 1.25:1 this breeding season—daughters entering production in 2028 will match what processors need, capturing premiums like Hilmar’s current $1.50/cwt for balanced milk
• High oleic soybeans deliver triple benefits: Feed 7 pounds daily (roasted to 9-11 PDI) to achieve 0.2% milkfat increase, 10 pounds more milk, and 8 kg less DMI according to Penn State and Michigan State research—netting $50-70/cwt savings after accounting for 70¢-$1.05 daily premium cost
• Risk management becomes a survival tool: Protect at least 30% of production through Dairy Revenue Protection or forward contracts before the month’s end—with $5-6 monthly Class III swings, a 200-cow operation saves $67,500 when prices drop from $21 to $18
• Regional adaptations matter: California operations facing water costs might see different high-oleic economics, Vermont graziers should adjust from 4 pounds in summer to 7 in winter, and operations under 100 cows can access custom roasting through cooperatives
• Component balance beats maximums: Target 0.78-0.82 protein-to-fat ratios rather than chasing extremes—University of Florida simulations show balanced operations face 40% less income volatility than those breeding for maximum single traits

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

• Stop Hemorrhaging Money on Feed: The Million-Dollar Risk Management Arsenal That’s Separating Profitable Dairies from the Walking Dead – This article goes beyond DRP, revealing the layered defense strategy that secures 60-70% of feed costs. Learn how to combine government programs and forward contracts to reduce cost volatility by 35%, adding budget certainty to your operation.
• Genetic Revolution: How Record-Breaking Milk Components Are Reshaping Dairy’s Future – Understand the $8 billion new processing reality by analyzing the April 2025 genetic base reset that saw a huge component rollback. This strategic breakdown reveals how NM$ 2025 now prioritizes feed efficiency and protein balance.
• Why High Oleic Soybeans Are About to Change Everything for Dairy Producers – Discover the low-risk path to feeding high-oleic soybeans. Research shows that raw, ground beans deliver a 3.5 lb ECM boost without roasting equipment, offering immediate feed efficiency gains and potential $0.75/cow savings daily.

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