The prior post covered volatility in dairy component prices. The protein price clearly has the most volatility. This post will dig a little deeper in the complex formula of pricing protein. The formula is shown below. The formulas used for valuing protein were initially developed in the early 1900s by Dr. Van Slyke. Some items have been modified over time, but still follow the concepts developed by Dr. Van Slyke.
The first line in the formula below represents the traditional method of valuing a commodity. In this case, the protein value is based only on the price of Cheddar cheese less the make allowance.
The second line expresses the value of butterfat in cheese as compared to the value of butterfat in butter. If the price of butterfat is typically worth more in cheese than in butter, and that becomes a positive contributor to the price of protein. If the price of butterfat is worth less in cheese than butter, it becomes a negative contributor to the price of protein. The formula is the current formula used in 2025 and 2026.
Protein Price =
((Cheese Price – 0.2519) × 1.383) +
((((Cheese Price – 0.2519) × 1.589)– Butterfat Price × 0.91) × 1.17)
Chart I below was shown in the prior post to expresses the extreme volatility of protein prices and is included here as a reminder.
Chart II shows the prices of cheese, butterfat and protein over the last four years. During this time, cheese and butterfat have decreased in value. The butterfat values are based on the price of wholesale butter. These four years were selected to show the impact of the varying prices of cheese and butterfat. During this time, the price of butterfat has decreased by 60%! The price of cheese has decreased by 30%.
Table I below covers the elements used to price protein. In 2025, the make allowance for the protein formula changed from $.2003 to $.2519, a 26% increase. The recovery of butter in butterfat was increased from .90 to .91, a small change. Cheese, butterfat, make allowance and butterfat recovery values are used to calculate the value of the protein.
Table II below shows exactly how the protein formula is used. From the formula shown at the top of this post, the first part of the formula calculates the value of protein based only on the price of Cheddar cheese less the make allowance. The next column shows the adjustment based on which is more valuable, butterfat prices based on the price of butter or price of cheese.
In 2023, butter was scarce and the price of butter and butterfat were high. Butterfat was worth more calculated by the price of butter than when it was priced by the price of cheese. Therefore, the value of the second part of the formula was negative.
In 2024 through 2006, The butterfat was worth more in cheese than butter and the “adjustment” became positive, adding to the value of protein.
SUMMARY
The formula used for protein is complicated but broken down it is simple. Using two commodity prices in the formula for protein does increase volatility. The increase in value of butterfat in cheese is positive most of the time and eliminating it would reduce the average price of protein.
ADDITIONAL COMMENT ON REVISED FORMULAS
The increase in the make allowance in 2025 lowered the value of both parts of the formula. It lowered the price of protein by $.16 per pound in September of 2025 and 2026. The $.16 drop in the protein price will continue in all future months.
Protein Price =
((Cheese Price – 0.2519) × 1.383) +
((((Cheese Price – 0.2519) × 1.589)– Butterfat Price × 0.91) × 1.17)
The decrease from the top line above, the value of protein in cheese ((Cheese Price – 0.2519) × 1.583) dropped by $.07 per pound.
The decrease from the second line above, the adjustment factor between butterfat values priced by cheese vs. butter ((((Cheese Price – 0.2519) × 1.589)– Butterfat Price × 0.91) × 1.17) dropped by $.09 per pound.
The reason for the larger amount in the butterfat adjustment results from the change in the butter recovery that increases the value of protein priced by the butter formulas.
The change in the make allowance gets counted twice. The change in the butter recovery gets counted once.
