Tag Archives: milk components

Milk solids seen as foundation for optimism in 2022

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By Sherry Bunting, Farmshine, December 24, 2021

NEW HOLLAND, Pa. — “Milk pricing is backward, but look forward, and focus on components,” said Dr. Normand St-Pierre of Perdue Agribusiness speaking at Homestead Nutrition’s December Dairy Seminar in New Holland, Pennsylvania, where 200 dairy farmers heard from experts about the markets and the all-important goals of modifying milk price by improving components, and improving the milk margin by feeding healthy cows.

St-Pierre urged producers to be smart as they look at their costs — to not cut costs that sacrifice early lactation milk yield. He also pointed out how these higher prices for all components make feeding for components a continued area of focus to help the dairy in the face of milk check deductions related to cuts in base allotments and balancing.

Earlier in the program, Dr. Mike Van Amburgh shared Cornell University research on how to feed cows in a way that optimizes component yield by percentage, not just in total volume pounds. Total component pounds have historically been a function of total milk volume, but today, percentage counts because of per-hundredweight milk check deductions and over-base penalties.

“Milk volume is being discouraged in many regions of the country,” said Van Amburgh. “So the opportunity for producers here is to enhance their milk components, to make components a primary strategy, while still making your milk volume.”

St-Pierre noted that the next six months will be better than the last six months with a better milk price, and the futures markets certainly confirm this — moving even higher over the past four weeks. Global milk production is down 1% year-to-date, global skim milk powder stocks are low, butter production has been down for three months, stocks are low, and the world is getting short on butterfat, he said.

He observed that the Class III price was averaging over $19 and Class IV over $20 looking out six to 12 months in the futures markets. (That was the case on December 8, and now Class III is averaging over $20 and Class IV over $21.)

He sees the milk check butterfat price averaging $2.30 over the next six months; however, he said he believes this average could actually go higher, while protein should average $2.80. 

Another positive he mentioned is the ‘solids nonfat’ are being priced higher, and the ‘other solids’ are priced at almost double the historical average, driven by robust whey sales.

Even the USDA World Supply and Demand Estimates (WASDE) report the day after this meeting (Dec. 9, 2021) revised forecasts higher for butter, cheese and whey with NFDM forecasted at steady prices in 2022. As pointed out by St-Pierre, the current trends suggest this report could revise upward again in January, although much hinges on consumer responses to inflationary pressure in their buying habits.

The 2021 All Milk price average was increased in the WASDE report to $18.60, buoyed by yearend strength, and the 2022 All-Milk price forecast was revised upward to $20.75.

If current futures market levels are realized, these higher trending milk prices should help dairies keep pace with rising input costs, although experts calculate feed costs to be up by around $2.50/cwt for 2022 vs. 2021 and all costs combined could be up by almost $3.50/cwt for 2022 vs. 2021.

St-Pierre dug into this from a milk pricing standpoint, and he shared the good news that negative producer price differentials (PPD) from 2020 and the first half of 2021 have “quieted down.” 

Negative PPDs eat into location adjustments and change the way components are ultimately valued when massive de-pooling of milk occurs in Federal Milk Marketing Orders.

“We have positive PPDs right now because Class III and IV are trading closer together,” he said, noting that the new Class I formula averages the two manufacturing classes and adds 74 cents, so when they trade farther apart, the producer sees the hit in Class I also, dragging down the blend price and leaving smaller or negative producer price differentials (PPD).

The Class I pricing change and negative PPDs are issues St-Pierre has written about.

“Now they are asking the people who made the mess to fix it. That escapes me,” he said, noting the Federal Milk Marketing Orders (FMMO) were created in the 1930s and designed at a time when there were hundreds of cooperatives and milk did not move all over the country and the world.

St-Pierre said FMMOs exist for “orderly marketing,” but the government made a ‘fix’ that is like fixing an old horse. “He’s fixed but not running very fast and may be at the point where the horse has had enough.”

FMMOs were also created at a time when people drank more milk. Today, he said, they eat more cheese.

Showing a graph of per-capita fluid milk sales from 1980 (234 pounds per capita annually) to 2018 (146 pounds per capita annually), St-Pierre asked: “Does that look to you like an area of growth? If that marketer worked for Coca-Cola, he would have long been unemployed.”

While he acknowledged fluid milk has been disadvantaged by “lazy marketing,” he also said promoting milk is very hard because “we are not in the same world as in 1980. We are competing against water — with food in a bottle that we have to keep refrigerated. Cheese is easier to sell.”

The per-capita rise in cheese consumption since 1980 reflects this.

In the past, said St-Pierre, the FMMOs were designed to put the highest price in the bottle because that was the most perishable product. Today, as for the past 20 years, the prices are still based on the surveys of four products at wholesale – cheddar, butter, nonfat dry milk, and whey.

It was designed to have those prices for Classes 1 through 4 go in that order, he explained. “But it doesn’t work that way anymore.”

“As the butter price goes up, just make more butter, right?” he asks. “But it’s hard to make butter in a cheese plant and vice versa.”

“If I’m a processor, and I built a big cheese plant, and it cost me $150 million, I make a lot of cheese,” St-Pierre quipped.

Plus the built-in make allowances encourage single-product, single-class production plants running at full capacity, regardless of what the market is doing.

“It will take a while to change that dynamic,” he said.

“All milk is paid on components, but handlers don’t pay for components in the same way in the (FMMO) pool,” said St-Pierre. He explained that milk handlers pay for components according to how the milk is used, what “class” of products the milk was utilized in.

Class I price is based on butterfat and skim, Class II on butterfat and nonfat solids. Class III, which is 55% of the milk utilization, pays mainly on protein and other solids with an adjustment for butterfat because cheese production also uses a lot of fat. Class IV pays on butterfat and nonfat solids.

“We price things backward. Tell me one thing that you can go out and buy and drive out of the store and a month later tell that store what you will pay for it,” St-Pierre said, noting this is essentially what milk buyers do through the FMMO system, month after month, year after year.

He encouraged producers to be looking ahead three months, which he admitted is hard to do when the pricing for their product is so far behind the transaction. Still, he said following the markets gives a good indication, and there is more reliability in the 3-month window than 6 to 12 months out in the futures markets. 

The Class III price is normally higher than Class IV, but for the next few months, even through the next year, it looks to be flip-flopped.

Using an ‘imaginary’ FMMO, he divided all four classes as 25% utilization, which in reality is not too far off what the Northeast Order can come close to. In that four-class FMMO, the different ways different classes pay for components cause the books to be out of balance after producers are paid their advance check based on protein. Knowing each class pays differently, the class price differences and utilization become the key to how that PPD is either positive, flat or negative.

When Class IV was $6 below Class III, cooperatives and processors de-pooled a lot of milk, St-Pierre observed: “They could just pay 20 cents over that $13.80 price to get the milk and then sell it back at the $20 (Class III) price. That makes the co-op look good but the producer gets shafted,” said St-Pierre.

In FMMO 30, where most of the utilization is already Class III, processors made a lot of cheese in 2020-21, but they didn’t pool a lot of that milk, and they got it cheaper, he explained.

Bottom line, said St-Pierre, the Federal Orders were never designed to operate this way. Then along came the “little change” in the Class I price. In the past, the FMMOs used the ‘higher of’ Class III or IV as the way to set the Class I base.

“If I am a bottler, I don’t like that (higher of) because I don’t know how to hedge it,” said St-Pierre. “I know my price ahead of time anyway (through advance Class I pricing), but I still don’t like the ‘higher of’ so I go and tell Congress to average it and add 74 cents. Then Covid-19 hits, and producers lose over $750 million.”

St-Pierre notes that the industry is trying to fix the system, backwards.

He confirmed that where the negative PPDs kick Northeast producers is in the location adjustments. A smaller than normal positive PPD is a loss, and when it goes negative, it eats into the location adjustment, which is also supposed to be positive.

Working through all of these thoughts about pricing and consumption pattern, St-Pierre left dairy farmers with the good news that for the foreseeable future, the PPDs should be positive, although smaller than normal in some months, and Class III and IV prices are both on the rise. 

Production has slowed, and demand is good, including for milk powders and whey. These positive supply and demand factors are confirmed in the dairy product production and cold storage reports.

With the very reasonable expectation of good prices for milk components, in the face of base penalties, balancing assessments, and other milk check deductions that a dairy producer encounters, the best way to navigate is focusing on component yield because the deductions are a flat amount per hundredweight of total volume, whereas component yield becomes a percentage increase in the value of those milk hundredweights.

Look for more on other interesting nutrition topics and milk quality award winners as this article continues in a future Farmshine.

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Achieving 7 lbs fat/protein has big impact on milk income

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In the virtual breakout panel on maximizing components to improve the dairy’s bottom line, during the Pa. Dairy Summit recently, Heather Dann joined Pennsylvania producers Alan Waybright and Jennifer Heltzel. Dann is a research scientist at the William H. Miner Agricultural Research Institute, Chazy, New York.  Photo provided

HARRISBURG, Pa. – Shipping 7 pounds of combined milk fat and protein is the threshold minimum for improved profitability. Heather Dann of Miner Institute in Northeast New York was part of a panel discussion during the Pennsylvania Dairy Summit, which included Alan Waybright of Mount Rock Dairy, Newville, milking over 800 Holsteins and crossbreds, and Jennifer Heltzel of Piney Mar Farm, Martinsburg, milking 120 Holsteins.

“Focusing on maximizing fat and protein is a key driver of profitability on the dairy farm,” said Dann, noting that a few years ago Cornell Pro Dairy did research showing return on assets (ROA) is highly correlated to milk income over feed cost (IOFC), and the biggest thing to affect IOFC is pounds of components produced.

At the Miner Institute, 480 Holsteins produce 98 pounds/cow with 1262 pounds of fat and 945 pounds of protein.

Dann showed a Federal Milk Marketing Order graph of the USDA milk price value of fat and protein over the past 10 years. No matter where milk prices are at — the combined pounds of fat and protein should be 7 pounds, or more, for the best return, she said.

“Protein has typically been worth more than fat,” Dann observed. “But the goal is to maximize both (protein and fat) to achieve profitability.”

She noted that this can be done through higher levels of milk production or through lower levels of milk production containing higher pounds of fat and protein.

To calculate, add the fat percentage and the protein percentage and multiply that total percentage to the pounds of milk. The goal is to be in the 7-pound range or higher, and at a minimum to be over 6 pounds total.

“To maximize components, get the diet and the dining experience right,” said Dann, noting that most farms use a nutritionist, so rations are formulated. Where the biggest area of opportunity lies is in the management of that ration – from the forages that are harvested, stored and utilized to the feedout, mixing and delivery of the TMR.

On larger farms with different people doing the feeding, Dann noted the importance of feed management software like TMR tracker.

Waybright talked about feeding to 3% refusals and then incorporating those refusals back into the TMR. Heltzel noted her husband feeds for accuracy to 1% refusals. Being that they milk 2x instead of 3x, the cows use the overnight time as resting time.

Dann talked about a research project at Miner where video cameras captured cow activity overnight when the bunk was purposely left empty. There was a lot of standing around at the bunk waiting for feed, she said.

“We never want to see an empty bunk,” she said. “We looked at what cows do when they don’t have feed. We removed feed and watched them, putting up trail cameras and videos to document. We tend to think if there’s no feed, they’ll go lay down, but what we found is they stand idly and wait for feed.”

During this study, they used different stocking densities to see the consequences of feed access as well.

“Cows running out of feed is bad for everyone, and even worse when cows are overcrowded. When the feed is delivered, if there is less time to access it, this changes their behavior and leads to slug feeding,” said Dann.

These are just some examples of how management of the feeding situation can contribute to low rumen pH that affect milk fat production to create milk fat challenges.

“We want to focus on ration formulation to optimize forage inclusion to maintain rumen health for milk component yields. And, if we think about the steps in the process, have a goal to make the metabolized ration the same as the formulated ration,” Dann explained.

On the forage side, harvesting and storage for a quality fermentation is critical. Also, when it comes to mixing feed for cows, loading ingredients in the right order and the right amounts with the appropriate mixing time and good maintenance of the mixer are important.

Dann noted that pushing up feed within the first hour of delivery helps with sorting.

Preparing the cow for the next lactation with how she is fed in the dry period is also important.

Both Waybright and Heltzel indicated they keep their dry cow rations simple.

“We look to control energy intake for her to have a good appetite after calving, while providing enough metabolizable protein to build her protein reserves as a dry cow,” said Dann, adding that they are big advocates of amino acid balancing for both lactation and dry cow rations.

Dann said the fat is the most variable component in milk. She talked about the composition of milk fat and testing that is available to know the fatty acid composition – whether preformed fatty acids, De Novo fatty acids and the amount of mixed profile fatty acids.

The De Novo fatty acids are made in the mammary gland and formulated through rumen activity. The mixed profile can include De Novo as well as pass-through ingredients from the ration.

“The fiber in the diet, when fermented in the rumen, creates the building blocks of the milk fat,” said Dann, adding that the microbial protein that is part of this process is also a great source of amino acids for the cow on the protein production side.

In a 40-herd study, Miner looked at the components and found high fat herds also had high levels of the De Novo fatty acids – the ones produced in the mammary gland from rumen function. This finding supports the idea that focusing on rumen health maximizes fat and protein production, whereas the amount of time cows spend in low rumen pH can reduce milk fat production and may reduce milk protein production.

The research showed that high De Novo fatty acid herds tend to have managers that are five times more likely to deliver feed twice a day in a freestall environment and 11 times more likely to deliver feed five times a day in tie stalls.

“Fresh feed delivery motivates cows to eat,” said Dann. “The 2x/day feeders vs. 1x/day feeders saw decreased sorting, increased feed intake and milk yield as well as rumination for a healthier rumen. That higher pH translated to more De Novo fatty acids which led to higher fat content in the milk.”

The research also showed that among the 40 herds, the higher fat herds were 10 times more likely to be provided with at least 18-inches of bunk space per cow and 5 times more likely to see stocking densities at 110% or less.

“Overstocking changes feed behavior,” said Dann. “With overcrowding, the cows slug feed and are more aggressive at the bunk, and this decreases rumination, which modifies rumen pH and increases risk of subacute acidosis or time spent in low pH. When we see up to two hours or more a day of low rumen pH, this affects milk yield and components.”

Miner research also has shown that cows will prioritize lying time over eating time. They will sacrifice eating time to compensate for lost resting time. This is why paying attention to the time budgets of cows in milking and holding time is important, as well as keeping feed at the bunk so they are not standing around at the bunk not eating.

“We want them eating or lying down, not standing and waiting,” said Dann.

In short, said Dann, “We want to manage the herd, the cows, to optimize key behaviors that maximize milk components.”

This means implementing cow comfort strategies that enhance rest and rumination, keep feed available 24/7 and lead to consistent feed quality.

Carefully formulated rations plus great forage and feed management plus top notch management of the environment add up to more components – a key to more milk income.

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