At the conclusion of the prior post, de-pooling of California Class IV milk in July was mentioned. Despite the effort to reduce de-pooling with higher Class I differentials, the practice of de-pooling Class IV milk in California continues (Chart I). This post will explain why this occurred and why it will continue.
In July, the California Federal Order Producer Price Differential (PPD) was positive.
There are multiple reasons for de-pooling Class IV milk in California. Two are listed below.
- The increase in the “Class I Differential” in the California Federal Order was small. The increase of $.70 per cwt. is near the bottom of the list of the 11 Federal Order.
- The percent of butterfat was high in July at 6.9% as Handlers placed components not just milk in the most advantageous way.
In both tables below there are two different calculations. One shows the published Statistical Uniform pricing based on standardized component levels and the other shows the actual pricing based on component deliveries.
In February 2025, before the new USDA pricing was implemented, Class IV milk in California was not de-pooled. In July 2025, after the new USDA Class I differentials were implemented, most of the Class IV milk was de-pooled. The Tables below show the important differences.
Class I milk cannot be de-pooled. The level of components is not based on the butterfat that was delivered in the milk, but by the Class I milk used for consumption.
- Whole milk – 3.5% butterfat
- 2% Milk butterfat
- 1% Milk butterfat
- Nonfat milk – near 0% butterfat
California milk as it comes from the cows has more than 4% butterfat. The actual butterfat levels used in Class I averages close to 2.5%. What happens to the rest of the butterfat? It gets delivered to plants producing for other Classes of milk. In the case of California, the excess butterfat goes primarily to Class IV milk. In February 2025 that increased the volume of class IV butterfat to 4.6%.
The price of Class I butterfat calculated by the “Advanced” pricing formulas was higher priced ($2.97 per pound) in February than the other Classes of milk. The Classes II, III, and IV use the “Class and Component” Pricing calculated at the end of the month. Those Classes valued butterfat at $2.82 per pound.
The Class I Differential was $2.10 per cwt. in February 2025.
In June 2025, the new USDA pricing was implemented and was used for the July 2025 pricing analysis below. In July there was significant de-pooling of Class IV milk. The Class I Differential was $2.80. The amount of butterfat in Class IV milk was 6.9%. The price of butterfat was higher than in February 2025. Together, the increase in percent of butterfat and the higher price of butterfat created a much higher price for Class IV ($28.50) than Class I ($21.00). The amount de-pooled was 85% of the Class IV milk. The new higher Class I Differential was not nearly enough to prevent de-pooling.
SUMMMARY
De-pooling of Class IV milk in California will continue when the amount of butterfat is high. The changes of PPDs in the Upper Midwest and the Northeast were both positive.
This pattern of high volumes of butterfat occurs only with Class IV. California is by far the largest producer of butter producing 1/3 of the U.S. butter. If other states have high percentages of butter in Class IV, the quantities will be small.
The implementation of the Class I differential will continue to be followed in future posts.
Other recent posts are available at this link, and older posts are available at this link.
