Why are protein prices lower?

We all know that milk protein prices are significantly lower. Why??

One small factor that seems to have not gotten much notice is the October, 2008 change in the "Make Allowance" for calculating protein values.

Beginning with the October price announcement, the "make allowance" for making milk into cheese was increased from $.1682 to $.2003/lb. - a 19% increase. This has the effect of lowering the value of milk protein by $.10 per pound.

When protein prices were more than $4, this would have been a small difference, but with protein prices under $2, the $.10 becomes significant.

The formula for protein pricing is:

((Cheese price – 0.2003) x 1.383) + ((((Cheese price – 0.2003) x 1.572) – Butterfat price x 0.9) x 1.17).

The protein value calculation is made by removing the "make allowance" from the price of cheese to leave the value for the ingredients. As the "Make Allowance" goes up, the value of protein - and therefore milk - goes down.