The US Class III milk price (milk used for making cheese) is the basis for the majority of milk payments to dairy producers in the US.
For November the price was $18.83 per hundredweight (cwt) ($0.41 per kg). The Class III price is based on the value of solids in the milk with different prices for milk protein, milk fat, and other solids. In November, milk protein was valued at $3.63 per pound (lb) ($8.00 per kg), milk fat at $1.63 per lb ($3.59 per kg), and other solids at $0.40 per lb ($0.88 per kg).
Dairy producers are paid based on the amount of these three components in their milk. The Class III price, which is broadly discussed, is in reality just an index and represents the value of milk with 3% milk protein, 3.5% milk fat, and 5.7% other solids.
At the November values, milk protein made up 58% of the value of Class III milk.
Over the long term, milk protein is the important driver of increased milk value.
The chart below shows the long-term trends for component values based on the US payment system, which has been in place since 2000.
At the beginning of that period, milk protein and milk fat had very similar values, near $1.50 per lb. ($3.31 per kg). Other solids essentially had no value. Currently, milk protein is worth roughly twice as much as milk fat and other solids has established a consistent value close to $0.40 per lb ($0.88/kg).
These trends have everything to do with cheese demand and pricing.
Cheese consumption in the US continues its long-term trend of increases, and more recently cheese exports have also added materially to the demand for cheese.
Nearly 100 years ago, Dr Van Slyke showed that economical cheese making requires high levels of milk protein. A previous article on DairyReporter.com discussed drinking milk consumption in the US. At one time this was the largest use of milk, but it continues to fall. The biggest use of US milk today is for cheese making.
The volume of cheese produced shows a steady increase over time with no expected change in this trend.
The value calculated for milk protein each month is based on the wholesale price of cheese and the milk producer price for milk fat.
The milk fat factor is derived from differential of value of milk fat in cheese as compared to the value of milk fat in butter. Therefore, by the formula driven payment system in the US, as the value of butter goes down, the value of milk protein goes up. The formulas give value to milk protein because it allows milk fat to have greater value when used in cheese instead of butter.
The chart below shows the two pieces that make up the value of milk protein; that which is derived from the price of cheese, and that derived from the differential of milk fat used in cheese instead of being churned into butter.
From a dairy producer’s viewpoint, the best way to maximize the revenue line is to maximize milk protein. The science of milk production has produced ways like balancing amino acids in feed to do this.
Will the value of milk protein continue to increase? Probably.
Will the value of milk fat remain nearly constant? Probably.
John Geuss (left) is the editor of US dairy commodities blog, MilkPrice.
To see John's in-depth month-by-month examinations of American dairy commodity movements, visit MilkPrice.