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 Feb 2018 is calculated by using the
bi-weekly (weighted) average of data released on Jan 06
and Jan 13. The advanced price was released on Jan 19, 2018

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 2.2339
Cheddar Cheese 1.5391
Dry Whey 0.2792
Nonfat Dry Milk 0.6926

NASS AA Butter Survey

Release Date: Jan 19, 2018



Butter Prices and Sales
01/06/2018 - 02/03/2018

                          1/06        1/13        1/20        1/27         2/03
Weighted Price
(dollars per pound)     2.2373      2.2312      2.1822      2.1573       2.1524

Sales
(pounds)             2,204,941   4,227,298   4,525,163   4,120,575    5,156,109


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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
Jan 06 2.2373 2,204,941 4933114.4993
Jan 13 2.2312 4,227,298 9431947.2976

Class III Advanced Butterfat Pricing Factor

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

= (AA Butter Price – 0.1202) * 1.20

= (2.2339 – 0.1202) * 1.20

= 2.1137 * 1.20

= 2.5364

So, the Butterfat Advanced Pricing Factor for Feb 2018 is 2.5364

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 Jan 2018
is calculated by using the monthly (weighted) average of
different weekly NASS prices. They were then released on
Feb 02, 2018

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 2.1972
Cheddar Cheese 1.5175
Dry Whey 0.2755
Nonfat Dry Milk 0.6966

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).

= ((1.5175 – 0.1682) x 1.383) + ((((1.5175 – 0.1682) x 1.572) – 2.1972 × 0.9) x 1.17).

= 1.7233

So, the Announced True Protein Component Price for Jan 2018 is 1.7233

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

= (0.2755 – 0.1956) * 1.03

= 0.0799 * 1.03

= 0.0823

So, the Announced Other Solids Component Price for Jan 2018 is 0.0823

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

= (0.6966 – 0.157) * 0.99

= 0.5396 * 1.03

= 0.5342

So, the Announced Non Solids Component Price for Jan 2018 is 0.6966

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 Feb 2018 is calculated by using the
bi-weekly (weighted) average of the two weeks preceding it.
These prices were then released on Jan 19, 2018

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 2.2339
Cheddar Cheese 1.5391
Dry Whey 0.2792
Nonfat Dry Milk 0.6926

Advanced Class III Skim Milk Pricing Factor

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

= (1.7465 * 3.1) + (0.0861 * 5.9)

= 5.92

So, the Advanced Class III Skim Milk Pricing Factor for Feb 2018 is 5.92

Advanced Class IV Skim Milk Pricing Factor

= Nonfat Solids Price * 9.0

= 0.5302 * 9.0

= 4.77

So, the Advanced Class IV Skim Milk Pricing Factor for Feb 2018 is 4.77

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 Feb 2018 for Cook County,
Illinois are calculated using the appropriate Class I differential
and Advanced values for Feb 2018 released the previous month on
Jan 19, 2018

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 2.2339
Cheddar Cheese 1.5391
Dry Whey 0.2792
Nonfat Dry Milk 0.6926

Class I Skim Milk Price

(at Cook County, IL)

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

= ($5.92 + $1.80)

= 7.72

So, the Class I Skim Milk Price for Feb 2018 is 5.92

Class I Butterfat Price

(at Cook County, IL)

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

= ($2.5364 + $0.0180)

= 2.5544

So, the Class I Butterfat Price for Feb 2018 is 7.72

Class I Price

(at Cook County, IL)

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

= ($7.72 × 0.965) + ($2.5544 × 3.5)

= 16.3902

So, the Class I Price for Feb 2018 for Cook County, IL is 16.3902

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 Jan 2018 are calculated using the advanced values, released on
Dec 22, 2017

Advanced Class III Skim Milk Pricing Factor

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

= 5.00 + 0.70

= 5.70

Class II Nonfat Solids Price

=(Advanced Class IV Skim Milk Price / 9)

= 5.00 / 9

= 0.6333

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 Jan 2018 was
announced on Feb 02, 2018.

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 2.1972
Cheddar Cheese 1.5175
Dry Whey 0.2755
Nonfat Dry Milk 0.6966

Butterfat Price

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

= (AA Butter Avg – 0.1202) *1.2

= (2.1972 – 0.1202) * 1.2

= 2.077 * 1.2

= 2.4924

So, the Announced Butterfat Component Price for Jan 2018 is 2.4924 $/lb.

Class II Butterfat Price

= Announced Butterfat Price + $0.0070

= 2.4924 + $0.0070

= 2.4994

So, the Announced Class II Butterfat Price for Jan 2018 is 2.4994

Class II Price

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

= (5.70 × 0.965) + (2.4994 × 3.5)

= 14.25

So, the Announced Class II Price for Jan 2018 is 14.25

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 Jan 2018
were based upon the class and component prices released on Feb 02, 2018

Class IV Skim Milk Price

=(Nonfat Solids Price x 9)

= 0.6966 × 9

= 4.81

Class IV Price

(at 3.5 % Butterfat)

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

= 4.81 × 0.965 + 2.4924 × 3.5

= 13.37