The Upper Midwest Federal Milk Order used 30.5 trillion pounds of Class III milk for cheese in 2023. This is far above the volume of any other Federal Order. The Upper Midwest is and has been "all about cheese" for a very long time. There is a lot of press about the current low Class III prices, usually using the Agricultural Marketing Service (AMS) Class III index parameters. The index is based on 3% milk protein and 3.5% butterfat. The Upper Midwest Class III milk in March is at 3.31% milk protein and 3.99% butterfat. It makes a big difference.
Data used below is based on 12-month moving averages to reduce monthly volatility. The raw data is from the USDA monthly statistics for the Upper Midwest.
Chart I shows the Class III protein revenue by month in the Upper Midwest Federal Order. With the current low price for protein the contribution to revenue has declined by more than 50% in the last three years. The reason for the decline is a low price for cheese and a very high price for butterfat. For an explanation of the impact of high butterfat prices on protein prices, click here.
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Chart I - Upper Midwest Revenue per Cwt. of Milk
From Protein |
Chart II shows the Upper Midwest butterfat revenue by month. The recent butterfat prices have escalated as high as double the lowest prior price on the Chart. Butterfat revenue per cwt. reached a high in October 2022. Can butterfat revenue offset the low protein prices?
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Chart II - Upper Midwest Revenue per Cwt. of Milk
From Butterfat |
Chart III show the combined revenue per cwt. for both protein and butterfat. The range from high to low is 19%. If the total value included Other Solids, the Class III value would be $18.31 per cwt. Not a great price, but not a horrible price.
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Chart III - Upper Midwest Revenue per Cwt. of Milk
From Protein and Butterfat |
How were producers in the Upper Midwest able to get this decent price per cwt.? A lot has to do with increasing component levels. Protein percent (Chart IV) has increased from 3.13% to $3.25 in the last five years. This is contributing an additional $.35 per cwt. of milk.
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| Chart IV - Protein Percent by Month |
Butterfat component levels (Chart V) have increased from 3.71% to a 3.90% high in December 2022. The current $3.90 price is contributing $.57 per cwt. more than in the beginning of 2019. Combined, the protein and butterfat component increases are adding $.92 per cwt. of milk compared to five years ago.
In the last 12 months, the butterfat percent in Class III has slightly dropped (Chart V) and as a result, the butterfat revenue in Chart II above has also fallen. This is unusual as butterfat prices are currently reaching new highs. If the butterfat percent in Class III had continued to increase, the impact would be significantly more.
(The butterfat delivery in the Upper Midwest is greater than that reported in their monthly USDA statistical statements. The butterfat test as delivered by the handlers for the Upper Midwest is 4.3%. Class I and Class III make up 99% of the milk used in the USDA monthly Federal Order report for the Upper Midwest. Class I is reported to have 2% butterfat and Class III is reported to have 4%. Where is the rest of the butterfat that was delivered? Who gets paid for the butterfat delivered to the Federal Order and that is not included in the monthly reports and what is the price? More on this will be covered in the next post to this blog.)
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| Chart V - Butterfat Percent by Month |
Compared to the index prices using 3% protein and 3.5% butterfat, the current revenue is $1.62 per cwt. of milk greater. The index prices used by the USDA formulas for Class III milk are based on the protein and butterfat levels in 1999.
Current prices for milk protein are very low. This is largely impacted by the out-of-date USDA price formula for milk protein. The is no current effort to change this formula.
Producers in the Upper Midwest have worked to maintain decent prices through the tough times.
