Home Industry News Economics What’s in Your Milk? Examining Component Tests in Federal Orders

What’s in Your Milk? Examining Component Tests in Federal Orders

Producers under the California Federal Marketing Order (CFMO) are paid according to the quantity of components in their milk (pounds of butterfat, protein, and other solids) and their respective prices along with a proportionate share of the classified value of the monthly pool as accounted for in the Producer Price Differential (PPD). As has been the case in recent months, the PPD is negative when the collective value of producer components exceeds the classified value of the pool. Two components—butterfat and protein—account for most of the value in a producer’s milk check. This value depends on both the price of each component as well as the concentration of each component in producer milk. This article examines the amount of protein and butterfat in pooled producer milk. The accompanying figures illustrate the butterfat and protein tests of pooled milk on Federal Order (FO) 51 since the Order’s inception and compare them to those under other FOs and to the weighted average tests of all other FOs that utilize component pricing. A map of all Federal Orders and their respective marketing area is available at https://cafmmo.com/publications/marketing-area-maps/.

Seasonal Trends

Pooled component tests under all FO areas exhibit a clear seasonal trend: butterfat and protein levels tend to peak in the early winter months, decrease through the spring months, and reach their lowest levels in the warmer summer months before
climbing through the fall. This strong seasonal trend is present even in FO areas like FO 124 
(Pacific Northwest) and FO 33 (Mideast), which had the highest and lowest butterfat tests, respectively, during the period.

Regional Comparisons

As shown in Figure 1, FO 51 pool butterfat tests tend to be lower than those of other FO areas. The weighted average butterfat tests in FO 51 from November 2018 to February 2021 is 3.88 percent, the lowest among all FO areas, but only 0.01 percentage points less than FO 33. FO 124 had the highest weighted average butterfat test at 4.10 percent. Excluding FO 51, the weighted average for FO areas using component pricing is 3.96 percent. It is important to note that the low volume of milk pooled and utilized as Class III, as experienced in many orders during 2020, is likely a factor behind some Orders’ lower average component tests.

Although FO 51 had lower butterfat tests than other FO areas, Figure 2 illustrates that FO 51’s pooled protein tests are significantly above the weighted average for all other FO areas in many months. In fact, FO 51 posted the third-highest weighted average protein test between November 2018 and February 2021 among FOs at 3.21 percent. FO 126 (Southwest) posted the highest weighted average protein test at 3.28, while FO 1 (Northeast) had the lowest at 3.12 percent. Overall, FO 51 posted a weighted average protein test 0.03 percentage points higher than that of all other FO areas using component pricing (3.18). When viewed in the context of recent component pricing trends—namely, record high protein prices in 2020—high protein tests generated the most revenue for producers. Protein accounted for seventy-five percent of the gross payment to FO 51 dairy farmers in 2020 (when calculated at the average tests of pooled milk).

Market dynamics will continue to have an influence on the component tests of pooled producer milk as producers look to their milk checks and maximize their payment. Pooled component tests, although not indicative of protein and butterfat in milk withheld from the pool, still offer valuable insight into regional and seasonal variations in component levels. — By Cary Hunter, California Federal Milk Marketing Order

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