The prior post reviewed the recent drop in butter and butterfat values. The high values for butterfat have encouraged significant increases in U.S. production of butter. While production of butterfat has increased significantly, the volume of milk protein has increased only slightly. The values of butterfat and milk protein have also been impacted by the recently implemented USDA changes in the formulas used for calculating the value of butterfat and milk protein.
The data in this post is based mostly on 12-month moving averages to minimize monthly volatility and provide a clearer picture of trends in the value of butterfat and milk protein.
Chart I below compares the prices of butterfat and milk protein over 25 years. Milk protein value was higher than butterfat value for the first 16 years. Milk protein is used to coagulate the protein to capture the butterfat in the cheese. In the past, the shortage of protein in the milk meant that protein had to be acquired and added to the milk to reach the proper blend of butterfat and milk protein for cheese making. That made milk protein valuable and butterfat plentiful. Therefore, butterfat was lower priced than milk protein. The technical effort to increase component levels was primarily aimed at increasing the production level of milk protein.
In 2017 the trend toward higher butter consumption (and lower plant-based butter substitutes) began. That continued until the COVID years of 2020 and 2021, when citizens were told to stay at home and work at home. Less butter was consumed, and the laws of supply and demand lowered the butter (and butterfat) prices and escalated the milk protein price.
As the impact of COVID fell, the demand for butter quickly increased. That created the necessity to import butterfat and forced the price of domestically produced butterfat to increase.
Protein is paid specifically in Class III milk only and Class III milk is over 50% of producer milk. Protein prices have fallen as butterfat prices increase. This factor is built into the USDA formulas.
The formula below for milk protein pricing is what was in use prior to June 2025. In the red circle is a deduction in the formula. As butterfat prices go up, the value of milk protein will always go down. There is more butterfat than protein in the producer milk. Producer revenue will go up with higher butterfat prices, but it will be partially offset by the decline in protein prices
Protein Price = ((Cheese Price – .2003) x1.383) +((Cheese price – .2003) x 1.572)
Protein Price = ((Cheese Price – 0.2519) x1.383) +((Cheese price – 0.2519) x 1.589)
Chart II below covers the last 10 years of the price comparisons between butterfat and milk protein. Except for the COVID years, butterfat has been higher priced than milk protein in the last 10 years. However, the gap is narrowing. The most recent prices for butterfat and milk protein are influenced (lowered) by the new USDA formulas. The gap will be closed, but not in 2025.
