Download (Class I Skim Milk Price * 0.965) +

ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor
[email protected]
515-294-3356
Chad Hart
Associate Professor
[email protected]
515-294-9911
Today’s Topic
Changes in the Milk Industry
Source: USDA-NASS, http://quickstats.nass.usda.gov/
Milk Production per Cow
Source: USDA-NASS, http://quickstats.nass.usda.gov/
MILK COWS THAT HAVE CALVED
JANUARY 1, 2015
(1000 Head)
U.S. Total:
Livestock Marketing Information Center
Data Source: USDA-NASS
9307
02/19/15
CHANGE IN MILK COWS THAT HAVE CALVED
JANUARY 1, 2014 TO JANUARY 1, 2015
(1000 Head)
U.S. Total:
Livestock Marketing Information Center
Data Source: USDA-NASS
99
02/19/15
CHANGE IN MILK COWS THAT HAVE CALVED
JANUARY 1, 2006 TO JANUARY 1, 2015
(1000 Head)
U.S. Total:
Livestock Marketing Information Center
Data Source: USDA-NASS
203
02/19/15
Milk Prices, Costs, and Returns
Source: USDA-ERS,
http://www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx
Major Dairy Products
Source: USDA-ERS,
http://www.ers.usda.gov/data-products/dairy-data.aspx
Per Capita Consumption
Source: USDA-ERS, http://www.ers.usda.gov/data-products/dairy-data.aspx
Average Milk Composition
SOLIDS
Whole Milk
Skim Milk
Butterfat
3.50 lbs
0.10 lbs
Protein
3.50 lbs
3.60 lbs
Lactose
4.90 lbs
5.10 lbs
Ash/Minerals
0.70 lbs
0.70 lbs
WATER
87.40 lbs
90.50 lbs
TOTAL
100.00 lbs
100.00 lbs
Classes of Milk
CLASS I
CLASS II
CLASS III
CLASS IV
Milk used for
beverage
purposes
Milk used for “soft”
mfg. products and
aseptic fluid prod.
Milk used for
“hard” cheeses
Milk used for
butter and dry
milk products
(e.g., whole and
reduced fat
milk, skim milk,
flavored milk,
eggnog, fluid
buttermilk
(e.g., cream, ice
cream, cottage
cheese, yogurt,
sour cream, dips,
cream cheese
products, aerosol
and whipping
cream)
(e.g., hard
American
cheeses, hard
Italian cheeses)
(e.g., butter and
butter based
spread, whole
milk powder,
nonfat dry milk)
Poured
Spooned
Cut with a knife
Spread with a
knife
Mixed with water
or fluid
Source: Dr. Ginder, ISU
Milk Prices by Class
• Given milk’s 4 classes, the Federal government has
developed pricing formulas for each class
• The class prices rely on average prices for dairy
products, such as butter, cheese, and skim milk
• The class prices are set monthly
• Class I prices are set before the month begins
• Classes II, III, and IV prices are set after the month
ends
Milk Prices by Class
• Class I and II prices depend on advanced prices,
dairy product prices before the pricing month, and
are announced before the month begins
• Advanced prices are two-week average prices for
butter, nonfat dry milk, cheese, and dry whey
• These advanced prices are taken roughly in the
middle of the preceding month
– So for example, the Class I milk price for March
depends on the dairy product prices from midFebruary
Milk Prices by Class
• The other class (III and IV) prices depend on dairy
product prices during the pricing month, and are
announced after the month ends
• These prices are four-to-five-week average prices for
butter, nonfat dry milk, cheese, and dry whey
• These prices are taken throughout the month
– So for example, the Class III milk price for March
depends on the dairy product prices from March
and will not be announced until April
Timing of Prices
Source: USDA-AMS,
http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5109786
Class IV Price
Class IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
The formula values 100 pounds of Class IV milk as:
96.5 pounds of Class IV Skim Milk and
3.5 pounds of Butterfat
The formulas for the other classes follow this rule as well
There are several make allowance and yield factor
adjustments in milk pricing
Class IV Price
Class IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Butterfat Price = (Butter Price – 0.1715) * 1.211
0.1715 is a make allowance, USDA’s estimate of the
additional costs to produce butter
1.211 is a yield factor, USDA’s estimate of the conversion
from butterfat to butter
Class IV Price
Class IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Class IV Skim Milk Price = Nonfat Solids Price * 9
9 is a yield factor, USDA’s estimate of the percent of nonfat
solids content of skim milk
Class IV Price
Class IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Class IV Skim Milk Price = Nonfat Solids Price * 9
Nonfat Solids Price = (Nonfat Dry Milk Price – 0.1678) * 0.99
0.1678 is a make allowance, USDA’s estimate of the
additional costs to produce nonfat dry milk
0.99 is a yield factor
Class IV Price for Jan. 2016
Class IV Price = f(Butter Price, Nonfat Dry Milk Price)
Butter Price = $2.0759/pound
Nonfat Dry Milk Price = $0.7776/pound
Butterfat Price = (Butter Price – 0.1715) * 1.211
= $2.3062/pound
Nonfat Solids Price = (Nonfat Dry Milk Price – 0.1678) * 0.99
= $0.6037/pound
Class IV Skim Milk Price = Nonfat Solids Price * 9
= $5.43/cwt.
Class IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
= $13.31/cwt.
Simplifying Class IV Price
Class IV Price = (Butterfat Price * 3.5) +
(Class IV Skim Milk Price * 0.965)
Class IV Price = (((Butter Price – 0.1715) * 1.211) * 3.5)
+ (((Nonfat Solids Price * 9 )* 0.965)
Class IV Price = (((Butter Price – 0.1715) * 1.211) * 3.5)
+ ((((Nonfat Dry Milk Price – 0.1678) * 0.99) * 9) * 0.965)
Class IV Price = 4.23850 * Butter Price
+ 8.59815 * Nonfat Dry Milk Price
– 2.16967
Class III Price
Class III Price = (Class III Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Butterfat Price = (Butter Price – 0.1715) * 1.211
0.1715 is a make allowance, USDA’s estimate of the
additional costs to produce butter
1.211 is a yield factor, USDA’s estimate of the conversion
from butterfat to butter
Class III Price
Class III Price = (Class III Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Class III Skim Milk Price = (Protein Price * 3.1) +
(Other Solids Price * 5.9)
3.1 is a yield factor, USDA’s estimate of pounds of protein
in skim milk
5.9 is a yield factor, USDA’s estimate of pounds of other
solids in skim milk
Class III Price
Class III Price = (Class III Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
The first part of the
protein price reflects the
value of the protein in
cheese
Protein Price = ((Cheese Price – 0.2003) * 1.383) +
((((Cheese Price – 0.2003) * 1.572) Butterfat Price * 0.9) * 1.17)
The second part of the
protein price reflects the
additional value of
butterfat to cheese
versus butter
0.2003 is a make allowance, USDA’s estimate of the additional costs to
produce cheese
1.383 (1.572) is a yield factor, USDA’s estimate if an additional tenth of
protein (butterfat) is contained in a cwt of milk
0.9 is a yield factor, USDA’s estimate of the percent nonfat solids
content in milk
1.17 is a yield factor, USDA’s estimate of the ratio of butterfat to protein
in cheese
Class III Price
Class III Price = (Class III Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Other Solids Price = (Dry Whey Price – 0.1991) * 1.03
0.1991 is a make allowance, USDA’s estimate of the
additional costs to produce dry whey
1.03 is a yield factor, USDA’s estimate of pounds of dry
whey obtained from a pound of other solids
Class III Price for Jan. 2016
Class III Price = f(Cheese Price, Butter Price, Dry Whey Price)
Cheese Price = $1.5178/pound
Butter Price = $2.0759/pound
Dry Whey Price = $0.2351/pound
Butterfat Price = (Butter Price – 0.1715) * 1.211
= $2.3062/pound
Protein Price = ((Cheese Price – 0.2003) * 1.383) + ((((Cheese Price –
0.2003) * 1.572) - Butterfat Price * 0.9) * 1.17)
=$1.8169/pound
Other Solids Price = (Dry Whey Price – 0.1991) * 1.03
= $0.0371/pound
Class III Skim Milk Price = (Protein Price * 3.1) + (Other Solids Price * 5.9)
= $5.85/cwt
Class III Price = (Class III Skim Milk Price * 0.965) + (Butterfat Price * 3.5)
= $13.72/cwt
Class II Price
Class II Price = (Class II Skim Milk Price * 0.965) +
(Class II Butterfat Price * 3.5)
Class II Butterfat Price = Butterfat Price + $0.007
Class II Butterfat Price depends on Butterfat Price from
Class III & IV
Class II Skim Milk Price = Advanced Class IV Skim Milk
Pricing Factor + $0.70
Estimate of the cost of drying
condensed milk and re-wetting
the solids in Class II products
Class II Price for Jan. 2016
Class II Price = f(Butterfat Price from Class III & IV,
Advanced Class IV Skim Milk Pricing Factor)
Advanced Class IV Skim Milk Pricing Factor = $9.93/cwt
Butterfat Price = $1.6855/pound
Class II Butterfat Price = Butterfat Price + $0.007
= $2.3132/pound
Class II Skim Milk Price = Advanced Class IV Skim Milk Pricing Factor
+ $0.70
= $6.31/cwt
Class II Price = (Class II Skim Milk Price * 0.965) +
(Class II Butterfat Price * 3.5)
= $14.19/cwt
Class I Price
Class I Price = (Class I Skim Milk Price * 0.965) +
(Class I Butterfat Price * 3.5)
Class I Skim Milk Price = Higher of Advanced Class III or IV
Skim Milk Pricing Factors +
Applicable Class I Differential
Class I Butterfat Price = Advanced Butterfat Pricing Factor +
(Applicable Class I Differential / 100)
Applicable Class I Differential = Adjustment for Location
Class I Price for Mar. 2016
Class I Price = f(Class I Skim Milk Price, Class I Butterfat Price)
Advanced Butterfat Pricing Factor = $2.4103/pound
Advanced Class III Skim Milk Pricing Factor = $5.54/cwt
Advanced Class IV Skim Milk Pricing Factor = $5.35/cwt
Applicable Class I Differential = $0.00/cwt
Class I Butterfat Price = Advanced Butterfat Pricing Factor +
(Applicable Class I Differential / 100)
= $2.4103/pound
Class I Skim Milk Price = (Higher of Advanced Class III or IV Skim Milk
Pricing Factors) + Applicable Class I Differential
= $5.54/cwt
Class I Price = (Class I Skim Milk Price * 0.965) +
(Class I Butterfat Price * 3.5)
= $13.78/cwt
Class I Price Differentials
Source: USDA-AMS,
http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELDEV3101903&acct=dairy
Class web site:
http://www.econ.iastate.edu/~chart/Classes/econ337/
Spring2016/
Lab in Heady 68.