Producer milk prices are falling. This primarily reflects the decreasing wholesale prices of butter and cheese. Class III milk makes up more than 50% of U.S. produced milk and butterfat and milk protein are both in a price decline. This post will show where prices are currently going. It will also show the impact on milk protein prices when butterfat prices change.
Next month, in June, the new USDA formulas will be implemented, and producer revenue will be lowered. See this post for details.
Chart I below shows the changes in butterfat and milk protein prices. At the beginning of 2021, butterfat and milk protein prices were equal. Butterfat prices then shot up, reaching a high of $3.71 per pound. During this time, milk protein prices fell. Butterfat prices have dropped, but they are still higher priced than milk protein and the component level of butterfat is significantly greater than milk protein. A recent study calculated that butterfat currently makes up 54% of producer revenue and milk protein makes up 35% of producer revenue.
The mirror image of butterfat and milk protein prices in Chart I are caused by the USDA pricing formulas. There are two things that influence milk protein prices, cheese prices and butterfat prices. More on this later in this post.
Chart II follows the wholesale prices of cheese and butter. Inflated dairy prices are declining and Cheddar cheese and butter wholesale prices are both falling. The trend line of butter prices shows a peak in late 2023 with a decreasing trend line since then. YTD in 2025, butter prices are nearly a dollar higher than in 2021 but have fallen by 27% from their peak.
Cheddar cheese prices have been more stable. The current price of cheese is near the level of 2021.
One very important factor in pricing milk protein is the formula used by the Agricultural Marketing Service (AMS). The formula is shown below. As the price of butterfat goes up, the price of milk protein goes down. Chart III illustrates what would happen if the price of butterfat stayed at its record of $3.71 per pound. Milk protein is currently valued at $2.17 per pound (Chart I). If butterfat retained its record price, milk protein would be worth only a $1.04 per pound, a decrease of $1.13 per pound.
The high butterfat prices are a benefit for all producer milk. However, Class III milk, the largest Class, loses some of the benefits of high butterfat prices with lower milk protein prices.
The combination of the current lower prices for both butter and cheese combined with the upcoming changes to the USDA formulas will create a financially difficult period for producers. There is one thing that can help overcome these lower prices, and that is a strong effort of increasing components.
