Supply and demand forces combine with federal and state dairy policies to establish prices farmers receive for raw (unprocessed, unpasteurized) milk. Most milk is priced according to its end use, with products grouped into four classes. Class I covers milk used for fluid, or beverage, milk products. Class II refers to milk going into 'soft' manufactured products such as sour cream, cottage cheese, ice cream, and yogurt. Class III takes in milk used for making hard cheeses. Class IV milk is used to make butter and dry products such as non-fat dry milk (NFDM).
USDA determines class pricing through formulas tied to values for four storable dairy commodity products: cheddar cheese, dry whey, NFDM and butter. Class IV uses NFDM and butter. Class III uses cheese, whey and butter. Class II is similar to Class IV, but with a 70 cent-per-hundredweight premium. Class I uses the average of Class III and Class IV plus 74 cents per hundredweight plus location differentials ranging from $1.60 per hundredweight to $6.00 per hundredweight.
Minimum farm prices -- often referred to as the blend price -- reflect Class prices weighted by utilization in a specified geography. USDA calculates and publishes those minimum prices each month. Local supply and demand conditions often generate additional premiums paid over and above published minimums.
Visit USDA's Agricultural Marketing Service website for more information.
Source: IDFA, November 2019