Product-Yield Pricing System. 2. Plant Considerations in Multiple-Component Pricing of Milk

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It is well-known that milk composition varies and that yields of milk products vary depending on that composition. Three sources of milk composition data were used to estimate milk costs per unit of product produced using three pricing formulas. Those sources represent large quantities of milk in Québec, Ontario, and the US. Milk costs varied seasonally and between plants or regions, the amount of variation depending on the pricing formula. The fat plus constant pricing formula resulted in lowest differences in milk costs (relative costs) for fluid milk (2%). The fat plus protein plus lactose plus minerals formula resulted in lowest relative costs for butter and non-fat dry milk. The fat plus protein formula resulted in lowest relative costs for cheese. Each formula resulted in important differences in milk costs for other products, both between plants or regions and seasonally. The differences in milk costs were large enough to have important effects on profitability of a plant. A product-yield pricing system resulted in lowest milk cost differences among plants and regions; i.e., lowest differences resulted when the appropriate pricing formula was used for each product, or a blend of formulas was used for a blend of products.