Dairy producers, who have the option, should consider feeding their milking herds to increase the butterfat component of their milk for the rest of this month and all of October, according to Mary Ledman, dairy economist with the Daily Dairy Report and president of Keough Ledman Associates Inc., Libertyville, Ill.
“One of the consequences of the rising butter price is that it lowers the protein value in the Class III price formula,” says Ledman.
The protein price in the Class III formula is calculated from the National Dairy Products Sales Report (NDPSR) cheese price minus a make allowance, and then it is adjusted for the value of butterfat in whey. A rising butter price has a negative impact on the protein value assuming cheese prices hold steady.
In August, the NDPSR butter price averaged $2.0438 per pound, while the monthly average NDPSR cheese price was $1.7386. Daily Dairy Report analysts expect September’s NDPSR butter price to exceed $2.40 and the average NDPSR cheese price to remain near $1.73.
“As a result, the component prices dairy producers see on their milk checks are expected to change dramatically in September compared to August,” says Ledman. She expects the September butterfat price to exceed $2.70/lb., which would be an increase of more than 50 cents from August levels, and she calculates that the protein price will fall more than 50 cents to near $2 per pound.
USDA’s Agricultural Marketing Service will release class and component prices for September on September 30 and for October on November 4.
“Whether the trend of rising butterfat values and falling protein values continues into October will depend on how long butter prices stay at their current lofty levels,” she says. On Monday, CME October butter futures were trading at an 8-cent premium to the September butter contract. “This suggests dairy producers would do better to feed their herds for a higher butterfat content for the rest of this month and in October,” Ledman says.
At the same time, the rising butterfat price results in lower skim prices for fluid milk manufacturers. Daily Dairy Report analysts forecast that the October base price for Class I fluid milk, which will be announced Wednesday, September 23, will drop to $15.84/cwt., down 50 cents from September’s price.
“However, the Class I skim price is expected to fall by more than $2.50 per hundredweight of milk, while the Class I butterfat price is projected to increase more than 50¢ per pound,” says Ledman. “The net change in the per-gallon price for whole milk, containing 3.25% butterfat, is a decrease of approximately 5.5¢ per gallon. However, the per-gallon decrease for skim milk is expected to exceed 20¢ per gallon.”
Source – Dairy Today