The Impact of Higher Milk Protein

The prior post detailed the real pricing of milk in the Upper Midwest.  There is significant de-pooling and movement of butterfat between classes.  The movement of butterfat from Class I milk to Class II milk has continued for many years as the blend of butterfat in fluid milk averages only about approximately 2% while butterfat as delivered is over 4%.  More recently a lot of butterfat has been moved from Class III milk to Class IV milk.  Milk protein production has not increased as much as butterfat production.  To maintain the balance of milk protein to butterfat, significant butterfat has been removed from Class III.  That lowers the components per cwt. in the largest Class of milk in the Upper Midwest.

This post will examine the potential impact of increasing milk protein in Class III milk and therefore using more butterfat in Class III milk.  By increasing the protein levels in Class III and retaining the butterfat in Class III it will increase the component levels and therefore reduce the amount of milk needed to make the equivalent amount of cheese.  In turn, the price per cwt. of Class III increases.  Class III milk is by far the largest class and higher component levels will increase the value of Class III milk per cwt. from $18.31 per cwt to $19.71 per cwt.

Increasing protein levels can be accomplished in many ways.  Increasing amino acid balancing is well known and effective.  Increasing protein levels by adding protein powders, adding nonfat dry milk, breeding, and other means.  The economics of using these must be considered.  

The principal benefit of higher proteins is for Class III milk producers.  However, it can benefit nonfat dry milk (NDM) and skimmed milk powder (SMP).  NDM is mostly exported to Mexico.  SMP is used in all international markets and requires a minimal protein level.  In turn, the value of Class IV skim influences the pricing of Class I and Class II. 

By making cheese from milk with higher component levels requires less milk benefiting cheese producers.  This also reduces the volume of milk needed in the U.S. as many producers are exiting due to the current low prices. 

Pricing in the USDA system is not as simple as only looking at cheese and butterfat prices.  The pricing system is complex and can be manipulated impacting Federal Milk Marketing Order pricing.   Some of the major pricing calculations require changes to an entire Federal Order.  Other changes can be impactful by individual herds.  Another factor influencing economics is herd health which is also difficult to include in decisions.

The calculations in this review are based on March 2024 statistics for the Upper Midwest.  The only real change was increasing the protein level from 3.29% to 3.60%.  This kept more butterfat in Class III as opposed to moving it to Class IV for butterfat.  The total amount of butterfat did not change