From the Oct/Nov 2018 Dairy Route Letter
With “MCP” (multiple component pricing) the value of your milk is based on the way various dairy products capture consumption (and money) from consumers.
Taking figures from March 2018 “Michigan Milk Messenger” for Mideast Federal Order #33. First we note that Class 1 (“bottled mlk”) utilization is 33%. This means 67% (two thirds) of your milk check is coming from all the other dairy product forms, where the fluid carrier (water) has been removed.
Price of Butterfat (per pound) $ 2.4531 Average butterfat% test was 3.97%
Price of Protein (per pound) $ 1.6612 Average protein% test was 3.22%
Price of Other solids (per pound) $ 0.0787 Average other solids was 5.76%
SCC adjustment (per 1000 cells) (per cwt) $ 0.00076 Average SCC level was 169,000
Uniform milk price at 3.5% butterfat (per cwt.) $ 14.64
LET’S ASSUME SOME HERD AVERAGES and see what milk prices they could generate
Scenario #1: 100 cows, 85 pounds per day, 3.5% bf, 3.0% pr, SCC 220,000
Within 8500 pounds of milk a day we would find 298 pounds of butterfat and 264 pounds of protein.
There could also be on average 490 pounds of “other solids” (basically lactose and minerals).
Price generated as follows: 297.5 # butterfat @ $ 2.45 = $ 728.88
255.0 # protein @ $ 1.66 = $ 423.30
489.5 # other solids @ $ 0.08 = $ 39.17
220,000 SCC @ $0.00076 = ($ 14.22)
You end up with a total of $ 1177.13 of “component value” from 8500 pounds (85 cwt) of milk.
The FMO 33 price calculated is $ 13.85. This is “gross price” before dues, hauling, bacteria, etc.
Scenario #2: 100 cows, 80 pounds per day, 3.9% bf, 3.2% pr, SCC 169,000
Within the same 8000 pounds per day we would find 312 pounds butterfat and 256 pounds protein.
Having no genetic data on range of “other solids” we will assume the same 461 pounds.
Price generated as follows: 312 # butterfat @ $ 2.45 = $ 764.40
256 # protein @ $ 1.66 = $ 424.96
461 # other solids @ $ 0.08 = $ 36.88
169,000 SCC @ $ 0.00076 = ($ 10.40)
You now end up with $ 1215.84 of “component value” from 8000 pounds (80 cwt) of milk, which
produces a calculated price of $ 15.20. Hauling will be the same cost, so possibly more net.
Scenario #3: 100 cows, 75 pounds per day, 4.5% bf, 3.6% pr, SCC 200,000
Price generated as follows: 337.5 # butterfat @ $ 2.45 = $ 826.88
270.0 # protein @ $ 1.66 = $ 448.20
432 # other solids @ $ 0.08 = $ 34.56
200,000 SCC @ $ 0.00076 = ($ 11.40)
You end up with $ 1298.24 component value from 7500 pounds (75 cwt) of milk = $ 17.31 price.
What do we learn from this math exercise?
Scenario # 1 is the herd that followed the advice to “breed for pounds” and the result is a herd that is actually below the regional average for component production per cwt. The return from all the extra pounds was a bigger bill from your milk hauler (and probably a bigger feed bill as well—it takes concentrated energy feed to produce high pound yields).
Scenario # 2 is the herd that may have bred for pounds but was avoiding bulls with SCS above 3.00 and avoiding bulls with negative bf% and pr% PTA values.
Scenario # 3 is the herd that has selected on increasing butterfat % and protein % (which as you see their results, proves they already understood how the milk check was figured) while preferring to pay less for hauling and needing less supplemental concentrates.
This also explains the PTA “Lifetime Net Merit” calculation of milk values
Ever since multiple component pricing entered the picture and changed how milk checks were calculated, AIPL took a look at their genetic indexing assumptions and lowered the value of milk volume (“fluid carrier”—of value only in bottled milk) to $ -zero-. In the selection of sires on genetic trait values, PTA Milk was making no contribution to future profitability. (Note bottling utilization at that time in FMO #33 was 40%. Now it has fallen to 33%. Nothing in dairy economics has changed in AIPL’s assumptions.)
Until a significant change in consumer preferences shows up in dairy reports, there is no reason to keep emphasizing “pounds of milk” in sire selection. Your cows may already have a dozen generations of “milk volume” genes accumulated, and to benefit from that it is necessary to select for higher component percentages over two or three generations to get your cow genotypes in line with dairy consumer buying patterns.
Take a look at your milk check and see what is being deducted for unsold milk (no matter what it is called at the moment). It is “pounds” of fluid milk that are being dumped in order to avoid the cost of processing milk that ends up unsold. You can produce fewer pounds, have smaller deducts for hauling and “market adjustment”, and have a bigger milk check – simply by culling low bf% cows and breeding to higher bf% bulls.
Normalizing dairy production to market consumption
Milk is a commodity subject to the laws of commodity economics: profits flow not to an increase in production, but to a lower cost of production. When prices are below what you need, don’t produce more pounds – concentrate on producing value. At the moment it is clear that butterfat is a major part of that calculation and will remain so.