Classified pricing. A classified pricing system dictates prices that differ according to category of use. In Federal and some State milk marketing orders, regulated processors must pay a minimum price for Grade A milk according to the class in which it is used. Most of the states that have their own pricing regulations, including California, have price structures analogous to the current Federal milk marketing orders (as of January 1, 2000) that have four classes (uses):

  • Class I. Grade A milk used in all beverage milks.
  • Class II. Grade A milk used in fluid cream products, yogurts, or perishable manufactured products (ice cream, cottage cheese, and others).
  • Class III. Grade A milk used to produce cream cheese and hard manufactured cheese.
  • Class IV. Grade A milk used to produce butter and any milk in dried form.

Pooling. With a classified pricing system such as that used in Federal and State orders, processors pay different prices for milk in each category of use (classes I-IV). Producers are paid a weighted average, or "blend," price for all uses of milk in a particular order or market. Processors pay into or draw out of the pool on the basis of their milk use relative to market average use. Producers participating in the pool receive identical uniform blend prices, with adjustments for butterfat content and location of the plant to which the milk is delivered. In markets with multiple component pricing, adjustments also are made for protein and other solids.

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