Calculation of Class and Component Prices

Based on the paper developed by:

Milk Market Administrator’s Office
Minneapolis, Minnesota & Lisle, Illinois

Timing of Release of Prices

Advanced Prices

The following prices are released by the 23rd,
using two week NASS Survey Prices. These prices apply to
the following month.

  • Class I Butterfat Price
  • Class I Skim Milk Price
  • Class I Price at 3.5% Butterfat
  • Class II Skim Milk Price

Announced Class Prices

The following Prices are released by the 5th using monthly
average NASS survey prices. These prices apply to the previous month:

  • Component Prices
  • Class II Butterfat Price
  • Class II Price at 3.5% Butterfat
  • Class III Prices
  • Class IV Prices

Calculation of Advanced Pricing Factors

Advanced Pricing Factors are calculated using the weighted
average of prices for the two most recent weeks that were
released before the 23rd of the preceding month.
In the folowing example, the Class III advanced butterfat
pricings factor for Sep 2017 is calculated by using the
bi-weekly (weighted) average of data released on Aug 05
and Aug 12. The advanced price was released on Aug 18, 2017

NASS Biweekly Average Prices

The advanced prices calculated in the section use biweekly
average U.S. NASS survey prices. These biweekly average prices
are calculated by a weighted average.

These biweekly average prices are as follows:

AA Butter 2.6728
Cheddar Cheese 1.6698
Dry Whey 0.4324
Nonfat Dry Milk 0.8785

NASS AA Butter Survey

Release Date: Aug 18, 2017



Butter Prices and Sales
08/19/2017 - 09/16/2017

                          8/19        8/26        9/02        9/09         9/16
Weighted Price
(dollars per pound)     2.6714      2.6280      2.6501      2.5868*      2.5046

Sales
(pounds)             4,468,955   4,125,434   3,610,300   2,325,617*   4,784,861


---------------------------

Here we demonstrate how to calculate biweekly weighted average for butter

AA Butter Prices

Two-week weighted average butter price calculation

Week Ending Price Pounds Value
Aug 05 2.6714 4,468,955 11938366.3870
Aug 12 2.6280 4,125,434 10841640.5520

Class III Advanced Butterfat Pricing Factor

(based on Two-week weighted average AA Butter Price)

= (AA Butter Price – 0.1202) * 1.20

= (2.6728 – 0.1202) * 1.20

= 2.5526 * 1.20

= 3.0631

So, the Butterfat Advanced Pricing Factor for Sep 2017 is 3.0631

Calculation of Protein Price

Component Prices are calculated using monthly average
dairy product prices for the month in question. In the
folowing example, component prices for Aug 2017
is calculated by using the monthly (weighted) average of
different weekly NASS prices. They were then released on
Sep 01, 2017

NASS Monthly Average Prices

The component prices calculated in the section use monthly
average U.S. NASS survey prices. These monthly average prices
are calculated by a weighted average.

The monthly average prices used in this section are calculated
from NASS prices for each week.

These monthly average prices are as follows:

AA Butter 2.6578
Cheddar Cheese 1.6664
Dry Whey 0.4345
Nonfat Dry Milk 0.8733

Class III Protein Price

(used for Class III and Class IV prices and in making payment to producers)

= ((Cheese price – 0.1682) x 1.383) + ((((Cheese price – 0.1682) x 1.572) – Butterfat price x 0.9) x 1.17).

= ((1.6664 – 0.1682) x 1.383) + ((((1.6664 – 0.1682) x 1.572) – 2.6578 × 0.9) x 1.17).

= 1.6211

So, the Announced True Protein Component Price for Aug 2017 is 1.6211

Class III Other Solids Price

(used for Class III and Class IV prices and in making payment to producers)

= (Dry Whey Price – 0.1956) * 1.03

= (0.4345 – 0.1956) * 1.03

= 0.2389 * 1.03

= 0.2461

So, the Announced Other Solids Component Price for Aug 2017 is 0.2461

Calculation of Class IV Nonfat Solids Price

(used for Class III and Class IV prices and in making payment to producers)

= (Nonfat Dry Milk Price – 0.157) * 0.99

= (0.8733 – 0.157) * 0.99

= 0.7163 * 1.03

= 0.7091

So, the Announced Non Solids Component Price for Aug 2017 is 0.8733

Calculation of Advanced Class III and Class IV Skim Milk Pricing Factors

Advanced Pricing Factors are calculated using the weighted
average of prices for the two most recent weeks that were
released before the 23rd of the preceding month.
In the folowing example, the Class III advanced butterfat
pricings factor for Sep 2017 is calculated by using the
bi-weekly (weighted) average of the two weeks preceding it.
These prices were then released on Aug 18, 2017

NASS Biweekly Average Prices

The advanced prices calculated in the section use biweekly
average U.S. NASS survey prices. These biweekly average prices
are calculated by a weighted average.

These biweekly average prices are as follows:

AA Butter 2.6728
Cheddar Cheese 1.6698
Dry Whey 0.4324
Nonfat Dry Milk 0.8785

Advanced Class III Skim Milk Pricing Factor

= (Protein Price * 3.1) + (Other Solids Price * 5.9)

= (1.6131 * 3.1) + (0.2439 * 5.9)

= 6.44

So, the Advanced Class III Skim Milk Pricing Factor for Sep 2017 is 6.44

Advanced Class IV Skim Milk Pricing Factor

= Nonfat Solids Price * 9.0

= 0.7143 * 9.0

= 6.43

So, the Advanced Class IV Skim Milk Pricing Factor for Sep 2017 is 6.43

Calculation of Advanced Pricing Factors

These Class I Prices are calculated by adding applicable Class
I differentials (for varying locations throughout the country)
to advanced pricing factors for the month in question. In the
following example, Class I prices for Sep 2017 for Cook County,
Illinois are calculated using the appropriate Class I differential
and Advanced values for Sep 2017 released the previous month on
Aug 18, 2017

NASS Biweekly Average Prices

The advanced prices calculated in the section use biweekly
average U.S. NASS survey prices. These biweekly average prices
are calculated by a weighted average.

These biweekly average prices are as follows:

AA Butter 2.6728
Cheddar Cheese 1.6698
Dry Whey 0.4324
Nonfat Dry Milk 0.8785

Class I Skim Milk Price

(at Cook County, IL)

= (Higher of advanced Class III or Class IV skim milk pricing factors + applicable class1 differential)

= ($6.44 + $1.80)

= 8.24

So, the Class I Skim Milk Price for Sep 2017 is 6.44

Class I Butterfat Price

(at Cook County, IL)

= (Advanced Butterfat Pricing Factor + applicable class1 differential/100)

= ($3.0631 + $0.0180)

= 3.0811

So, the Class I Butterfat Price for Sep 2017 is 8.24

Class I Price

(at Cook County, IL)

= (Class I Skim Milk Price x 0.965) + (Class I Butterfat Price x 3.5)

= ($8.24 × 0.965) + ($3.0811 × 3.5)

= 18.73545

So, the Class I Price for Sep 2017 for Cook County, IL is 18.73545

Calculation of Class II Skim Milk and Nonfat Solids Price

These Class Prices are based on Advanced Pricing factors released in the
month preceding the month in question. In the following example, the Class
prices for Aug 2017 are calculated using the advanced values, released on
Jul 21, 2017

Advanced Class III Skim Milk Pricing Factor

= (Advanced Class IV Skim Milk Price + $0.70)

= 6.55 + 0.70

= 7.25

Class II Nonfat Solids Price

=(Advanced Class IV Skim Milk Price / 9)

= 6.55 / 9

= 0.8056

Calculation of Class II Butterfat Price

Class II Butterfat Price is based upon announced component prices
(butterfat price) which are obtained by a monthly average of NASS
weekly prices over 4 or 5 different weeks. These are released on
a Friday on or before the 5th of every month, for the previous
month. For example, the component prices for Aug 2017 was
announced on Sep 01, 2017.

NASS Monthly Average Prices

The component prices calculated in the section use monthly
average U.S. NASS survey prices. These monthly average prices
are calculated by a weighted average.

The monthly average prices used in this section are calculated
from NASS prices for each week.

These monthly average prices are as follows:

AA Butter 2.6578
Cheddar Cheese 1.6664
Dry Whey 0.4345
Nonfat Dry Milk 0.8733

Butterfat Price

(used for Class III and Class IV prices and in making payment to producers)

= (AA Butter Avg – 0.1202) *1.2

= (2.6578 – 0.1202) * 1.2

= 2.5376 * 1.2

= 3.0451

So, the Announced Butterfat Component Price for Aug 2017 is 3.0451 $/lb.

Class II Butterfat Price

= Announced Butterfat Price + $0.0070

= 3.0451 + $0.0070

= 3.0521

So, the Announced Class II Butterfat Price for Aug 2017 is 3.0521

Class II Price

= (Class II Skim Milk Price x 0.965) + (Class II Butterfat Price x 3.5)

= (7.25 × 0.965) + (3.0521 × 3.5)

= 17.68

So, the Announced Class II Price for Aug 2017 is 17.68

Calculation of Class IV Prices

These Class IV Prices for any given month are computed from class and
component prices for the month released by the 5th of the
following month. In the following examples,the prices for Aug 2017
were based upon the class and component prices released on Sep 01, 2017

Class IV Skim Milk Price

=(Nonfat Solids Price x 9)

= 0.8733 × 9

= 6.38

Class IV Price

(at 3.5 % Butterfat)

= (Class IV Skim Milke Price x 0.965) + (Butterfat Price x 3.5)

= 6.38 × 0.965 + 3.0451 × 3.5

= 16.81