The Federal Milk Marketing Order (FMMO) System
In the United States, milk is not priced as a single commodity. Instead, it is categorized and priced based on its final use through the Federal Milk Marketing Order (FMMO) system, which was established to ensure fair and stable pricing for dairy producers. This system divides milk into four primary classes, with Class 3 being distinct for its specific end products.
FMMOs cover roughly 75% of total U.S. milk production and set the minimum prices that milk handlers (the buyers from farmers) must pay for the milk, depending on its class utilization. A farmer’s “mailbox price” is a blend price reflecting the weighted average of how all the milk in their market order is used across the different classes. As such, the value and utilization of Class 3 milk significantly influence a dairy farmer's overall income.
The Primary Use: Hard Cheeses
When producers and traders talk about Class 3 milk, they often refer to it as “cheese milk”. This is because its primary purpose is the production of hard and semi-hard cheeses. The milk is processed in a way that separates the milk's solid components (curds) from the liquid portion (whey). Key types of cheese that fall under the Class 3 designation include:
- Cheddar: From young, mild versions to aged, sharp varieties, cheddar is a cornerstone of the Class 3 market.
- Mozzarella: This includes both traditional and pizza-style mozzarella.
- Other hard cheeses: The classification also covers other hard cheeses that can be grated or shredded, such as Swiss, Parmesan, and Provolone.
- Cream Cheese: The FMMO system also includes cream cheese within the Class 3 category.
The process of cheesemaking involves adding cultures and rennet to coagulate the milk proteins (casein), forming the solid curd. After the curd is separated and pressed, it is aged, sometimes for many months or years, to develop the characteristic flavors and textures of a hard cheese.
The Secondary Product: Dry Whey
One of the most significant aspects of Class 3 milk is its valuable byproduct: whey. When milk is curdled to make cheese, the remaining liquid is whey, which is then processed into a variety of products, most notably dry whey powder.
The whey processing journey:
- Collection: The liquid whey is collected after the cheese curds are separated.
- Pasteurization: It is repasteurized for safety and quality control.
- Filtration and Concentration: Membrane filtration or other processes are used to concentrate the whey protein and remove lactose and minerals.
- Drying: The concentrated whey is then spray-dried into a fine powder.
Dry whey is an extremely valuable commodity with multiple uses, including as an ingredient in food products like baked goods and infant formula, and as a protein source in sports nutrition supplements. Its price is one of the key factors used in the formula that determines the minimum price for Class 3 milk.
The Economic Role of Class 3 Milk
Class 3 milk plays a crucial economic role beyond simply being used for cheese and whey. Its futures contracts are heavily traded on exchanges like the Chicago Mercantile Exchange (CME), offering dairy farmers and processors a tool for price risk management. By engaging in futures contracts, dairy producers can lock in a price for their milk ahead of production, providing a measure of stability in an otherwise volatile market.
The market value of Class 3 milk is directly linked to the wholesale prices of cheddar cheese and dry whey. This close relationship means that fluctuations in the commodity markets for these finished products have a direct and measurable impact on the price that farmers receive for their milk. For example, a surge in cheese prices will typically lead to a higher Class 3 milk price, and vice versa.
A Look at the Different Milk Classes
To better understand the specific role of Class 3 milk, it is helpful to compare it with the other classifications in the FMMO system. While Class 3 is all about storable, hard manufactured goods, other classes serve different market needs. Here is a comparison of the main Federal Milk Marketing Order classes:
| Feature | Class 1 | Class 2 | Class 3 | Class 4 |
|---|---|---|---|---|
| Primary Use | Fluid products | Soft products | Hard cheeses | Butter & Dry products |
| Examples of Products | Drinking milk, eggnog | Yogurt, ice cream, sour cream, cottage cheese | Cheddar, mozzarella, swiss, cream cheese | Butter, nonfat dry milk, condensed milk |
| Pricing | Average of Class 3 & 4 plus a differential | Based on Class 4 prices plus a differential | Based on cheese, dry whey, and butter prices | Based on butter and nonfat dry milk prices |
| Storability | Highly perishable | Short shelf life | Long shelf life | Long shelf life |
| Market Volatility | Higher price relative to other classes, but varies by location | Varies; tied to Class 4 but with a premium | Tied directly to wholesale cheese and whey markets | Tied directly to wholesale butter and dry milk markets |
Conclusion
In conclusion, what is Class 3 milk used for is a question answered by a pivotal part of the dairy processing world: manufacturing hard cheeses and dry whey. This classification is far more than just a label; it represents a key segment of the dairy economy, providing essential and storable products. The market dynamics and pricing formulas for Class 3 milk have a profound and direct impact on the profitability of dairy farms across the United States. Understanding its uses helps to clarify the complexities of the dairy supply chain and the factors that influence the price of dairy products, from the farm gate to the grocery store shelf.
For more detailed information on the official classification system and pricing formulas, visit the USDA Agricultural Marketing Service website.
