Component pricing

Definition

Component pricing pays for milk by the pounds of its valuable solids rather than by volume alone. Under multiple component pricing (MCP), the federal order component orders pay producers for:

Butterfat lb, at the butterfat price.
Protein lb (true protein), at the protein price.
Other solids lb, at the other solids price. Other solids are solids other than fat and protein, mainly lactose and minerals.
Plus the PPD per cwt of milk, and in four orders (Upper Midwest, Central, Mideast, Southwest) a somatic cell adjustment per cwt. Under 7 CFR 1000.50(p) the adjustment is 0.0005 × the monthly block cheese price × (350 − the milk’s SCC in thousands), so milk under 350,000 cells/mL earns a credit and milk over it a charge.

The component prices are the same ones used to build the Class III price (see class prices). Skim/butterfat orders pay instead for butterfat plus a skim price per cwt, so only fat test changes the price in those orders.

Each component lb comes from the milk weight and the test:

component lb = milk lb × test (%) / 100

Tests for a month must be weighted by volume: total component lb divided by total milk lb across loads, not a simple average of load tests (see milk components).

Formula

butterfat lb    = milk lb × fat % / 100
protein lb      = milk lb × protein % / 100
other solids lb = milk lb × other solids % / 100

component pay = butterfat lb × butterfat price
              + protein lb × protein price
              + other solids lb × other solids price
              + (milk lb / 100) × PPD
              ± (milk lb / 100) × somatic cell adjustment   (orders that use it)

\text{Pay} = \sum_{k \in \{bf,\,pro,\,os\}} \frac{\mathrm{lb} \times t_k}{100} P_k + \frac{\mathrm{lb}}{100}\left(\mathrm{PPD} \pm A_{SCC}\right)

Worked example for 100 lb of milk at 4.0% fat, 3.2% protein and 5.75% other solids, with butterfat at $2.50/lb, protein at $2.50/lb, other solids at $0.30/lb and PPD at $0.50/cwt (illustrative prices only):

4.0 × 2.50 + 3.2 × 2.50 + 5.75 × 0.30 + 0.50
= 10.00 + 8.00 + 1.73 + 0.50 = $20.23/cwt

How to pull it in DC305

DC305 does not hold component prices or pay. Prices come from the federal order announcement; the farm’s paid tests come from the buyer statement and pickup samples.

DC305 can provide the herd’s own cow-level milk and, if DHI test results are imported, fat % and protein % by cow. Use them to see which groups drive component output (by lactation, DIM, pen), not to replace the bulk tank tests.

The standard items are PCTF and PCTP (fat % and protein % at the last test), e.g. SUM MILK PCTF PCTP BY LCTGP FOR LACT>0 MILK>0.

Weight cow tests by milk lb before comparing them to the tank: a herd average of cow fat % is not the tank fat %.

Typical range

Herd context: US federal order milk; values vary by order and month. Tests are for US Holsteins, freestall or dry-lot.

Item	Order of magnitude
Butterfat price	about $2.00–$3.50/lb in recent years
Protein price	about $1.50–$4.50/lb; the most volatile component
Other solids price	about $0.05–$0.60/lb
Holstein tank fat test	about 3.8–4.2%
Holstein tank protein test	about 3.1–3.3%
Other solids test	about 5.6–5.8%

Butterfat and protein together usually make up the large majority of the component-order pool check (often cited as well over 80%), so fat and protein tests move pay much more than volume.

Common mistakes

Simple-averaging load tests. Weight by volume (Σ component lb ÷ Σ milk lb).
Mixing fractions and percents. Some systems store 0.040 for 4.0% fat. Check the scale before multiplying.
Using crude protein. Federal orders pay on true protein.
Comparing $/cwt across herds without tests. A high-component herd earns more per cwt at the same component prices.
Forgetting the PPD and SCC adjustments are per cwt. They scale with volume, not with components.
Assuming component pricing in every order. Skim/butterfat orders pay only for fat and skim.