California’s milk marketing program establishes minimum prices that processors must pay for Grade A milk received from dairy farmers. For the purposes of setting prices, there are five classes of milk that are established depending on the type of dairy product. In California’s milk pricing system. The most significant factors in determining the minimum price that processors must pay for milk are the wholesale commercial market prices for four dairy product commodities: 1. The simple average spot price for Grade AA butter at the Chicago Mercantile Exchange (CME), 2. The California weighted average price (CWAP) for nonfat dry milk (NFDM) as reported by the California Department of Food and Agriculture (Department), 3. The simple average spot price for block Cheddar cheese at the Chicago Mercantile Exchange (CME), and 4. The simple average of the mostly price for Western dry whey (WDW) as reported by Dairy Market News (DMN). Milk consists of three basic components: butterfat (fat), solids-not-fat (SNF), and fluid carrier (water). Prices are assigned to all three components in the determination of the Class 1 milk price. Only the fat and SNF components are used to set the Class 2, 3, 4a, and 4b milk prices. Because prices are determined for individual milk components, a simple calculation must be performed to obtain the implied hundredweight price for representative milk testing 3.5% fat and 8.7% SNF. Class 1, 4a, and 4b prices are adjusted monthly, and Class 2 and 3 prices are adjusted bimonthly.