What is Class II Milk? An In-Depth Look at its Uses and Pricing

According to the USDA, Class II milk accounts for roughly 13.5% of total milk production in the United States and plays a vital role in the dairy processing sector. In the federal milk marketing system, the classification of raw milk is based on its final product use, which dictates its market price. What is Class II milk? It is primarily processed into soft, or fresh manufactured, dairy products.

Quick Summary

This article explains the purpose and products of Class II milk under the Federal Milk Marketing Order system. It details its uses in items like yogurt, ice cream, and cottage cheese, contrasting it with other milk classes and outlining its unique pricing structure based on market value.

Key Points

• End-Use Classification: Class II milk is designated for soft dairy products like yogurt, ice cream, and cottage cheese, differentiating it from fluid milk (Class I).

• Federal Regulation: The classification and pricing of Class II milk are regulated by the Federal Milk Marketing Order (FMMO) system in the United States.

• Stable Pricing: Class II milk prices are based on the component values (butterfat, nonfat solids) of the more volatile Class III and IV milk prices from the previous month, plus a differential, providing stability for processors.

• Market Demand: Class II fills the demand for fresh manufactured dairy goods, which have a shorter shelf life than hard cheeses (Class III) or dry products (Class IV).

• Diverse Products: The category is broad, covering a wide range of popular items from heavy cream and sour cream to various frozen desserts.

The Federal Milk Marketing Order System

The dairy industry in the United States is regulated by the Federal Milk Marketing Order (FMMO) system, which establishes minimum prices that milk handlers (processors) must pay to dairy farmers. This complex system ensures a stable milk supply by categorizing raw milk into one of four (or sometimes more, depending on the region) classes based on its end use. This classified pricing model is critical for balancing supply and demand across different dairy sectors. While Class I milk, used for fluid products, typically commands the highest price, other classes, like Class II, serve equally important roles in the production of a wide range of dairy goods.

What is Class II Milk Used For?

Class II milk is designated for the production of "soft" or fresh manufactured dairy products. These products have a relatively shorter shelf life compared to those made from Class III (cheese) or Class IV (butter/powder) milk. The milk is processed into a variety of popular items you can find in the grocery store. Here is a list of the most common products derived from Class II milk:

• Yogurt: This includes all types of yogurt, from traditional and Greek yogurt to drinkable yogurt varieties and kefir. The milk is cultured to create the characteristic thick texture and tangy flavor.
• Cottage Cheese: The milk is coagulated to form the curds that are the basis of cottage cheese.
• Heavy Cream and Sour Cream: Class II milk is used to produce various types of cream, including heavy cream for whipping and sour cream for toppings and dips.
• Ice Cream and Frozen Dairy Products: This category covers not just ice cream, but also ice cream mixes, frozen yogurts, and other frozen dairy desserts.
• Other Dairy Desserts: Some regional classifications also include products like puddings, custards, and milkshakes under the Class II umbrella.

The flexibility of Class II milk allows processors to meet the varying demands of the market for these value-added, cultured, and soft products. In some areas, such as California, the classification system may have more refined categories, such as Class 4b for cottage cheese specifically.

The Pricing of Class II Milk

Unlike the more volatile prices of Class III (cheese) and Class IV (butter and powder) milk, which are directly tied to commodity markets, the price of Class II milk is calculated based on the Class III and IV milk prices from the previous month. This system gives handlers a more stable and predictable cost for the raw material. The pricing formula involves adding a premium (known as a "differential") to the component values derived from these other classes. The price is not only based on butterfat, but also on nonfat solids, which reflects the different product compositions. This ensures that the price paid to farmers for their milk reflects the market value of the end products, while providing a degree of price stability for the manufactured goods.

Class I vs. Class II Milk Pricing

Class I milk, intended for fluid consumption, typically has the highest value and is priced significantly higher than Class II milk in most markets. This is because fluid milk is a necessity with consistent demand, whereas demand for Class II products can fluctuate. This price differential helps incentivize the dairy industry to first meet the demand for fluid milk before allocating supply to other uses. Both classes are part of the broader FMMO system that ultimately determines the blended or uniform price that a farmer receives, based on the total milk utilization within their specific market order. This tiered pricing mechanism helps to manage the overall supply and flow of milk through the processing pipeline.

Comparison: Classes of Milk and End Uses

Feature	Class I Milk	Class II Milk	Class III Milk	Class IV Milk
Primary Products	Fluid products (whole, skim, etc.), flavored milk, buttermilk, eggnog	Soft products (yogurt, ice cream, cottage cheese, cream)	Hard and soft cheeses (cheddar, mozzarella, ricotta), whey products	Butter, nonfat dry milk powder, other dry milk products
Shelf Life of Product	Shortest (Fluid)	Short (Fresh Manufactured)	Longest (Hard Cheese)	Long (Powder, Butter)
Price Volatility	Less volatile, often highest price due to consistent demand	Stable, based on component values of other classes	Volatile, tied directly to cheese futures and commodity prices	Volatile, tied directly to butter and powder commodity prices
Pricing Method	Highest price differential, based on market needs and location	Calculated based on Class III and IV prices with an added premium	Directly linked to cheese and whey prices	Directly linked to butter and nonfat dry milk prices

The Role of Class II Milk in the Dairy Supply Chain

Class II milk, while not the highest-priced milk, is essential for a healthy and balanced dairy industry. It allows for the production of a diverse range of fresh and cultured dairy products that cater to various consumer tastes. From the thick, probiotic-rich yogurts that many enjoy for breakfast, to the creamy indulgence of ice cream and the versatility of cottage cheese, these products rely on the steady supply of milk categorized for their specific purpose. The FMMO system ensures that the raw milk supply is allocated efficiently, providing stability for farmers and a consistent flow of products to consumers. This classification helps the entire supply chain, from producer to processor to consumer, operate predictably within the complex dairy market.

Conclusion

Understanding what is Class II milk is key to appreciating the intricacies of the dairy industry's pricing and processing systems. It is not a lesser quality milk, but rather a designation for milk specifically earmarked for the creation of popular and versatile soft dairy products such as yogurt, cottage cheese, and ice cream. The classified pricing structure, governed by federal milk marketing orders, ensures that milk is used efficiently and that farmers are fairly compensated based on the market value of the final products. While Class I milk receives the most attention, Class II's role in providing a wide variety of cultured and fresh dairy items is crucial to the industry's success and consumer satisfaction.

Resources

To learn more about the specifics of milk pricing and the federal order system, you can consult the USDA's Agricultural Marketing Service website which provides detailed information on class and component prices.

Sources

• [California Department of Food and Agriculture - CDFA (.gov) https://www.cdfa.ca.gov/dairy/pdf/steps_for_calc_minprices.pdf]: (CDFA) This document from the California Department of Food and Agriculture details the different milk classes and their uses within the state's pricing system.
• [Learn About Economics https://www.youtube.com/watch?v=Z1pjAsJ31vQ]: (YouTube) A video explaining the different classes of milk and their economic roles within the U.S. dairy market.
• [Food and Agriculture Organization https://faolex.fao.org/docs/pdf/ns96272.pdf]: (FAO) Official regulations from Canada describing their milk classes, which includes subclass details for Class 2 products.
• [McCully Consulting https://mccullyconsulting.com/milk-pricing-101/]: (McCully Consulting) An article providing a basic overview of milk pricing and the four main classes in the FMMO system.
• [Farm Credit East https://www.farmcrediteast.com/en/resources/todays-harvest-Blog/understanding-producer-price-differential-on-your-milk-check]: (Farm Credit East) An article that lists the products associated with each milk class.
• [Federal Milk Marketing Orders - USDA https://www.fmmacentral.com/PDFdata/msb200906.pdf]: (FMMO) A PDF overview explaining the principles of classified pricing within the Federal Milk Marketing Orders.
• [Congress.gov https://www.congress.gov/crs-product/R45044]: (CRS Report) An overview of the FMMO system, including the four milk classes based on end-use.
• [Milk Market Administrator (CA) https://www.cafmmo.com/prices/class-component/]: (USDA AMS) Official USDA data source for price formulas and component prices used in milk market orders.

Frequently Asked Questions

What are the main products made from Class II milk?

Class II milk is primarily used for making soft and fresh manufactured dairy products. This includes yogurt, cottage cheese, sour cream, heavy cream, ice cream, and various other frozen dairy desserts and puddings.

How is Class II milk different from Class I milk?

The main difference lies in the end-use and pricing. Class I milk is for fluid consumption (like whole milk or skim milk) and typically has the highest, most stable price. Class II milk is for soft, manufactured products and has a different, typically lower, price formula based on other commodity milk prices.

Is Class II milk lower quality than Class I milk?

No, the classification system is based on the end product, not the quality of the raw milk. Both Class I and Class II milk meet high quality standards for Grade A fluid milk. The classification simply determines the minimum price a processor must pay based on how they use the milk.

Why is milk classified into different categories?

Milk is classified to manage the complex economics of the dairy industry. The classified pricing system helps balance milk supply with demand for various dairy products, ensuring dairy farmers receive fair compensation and providing market stability for processors.

How is the price of Class II milk determined?

The price is determined by a formula under the Federal Milk Marketing Orders. It uses the market-based prices for milk components (butterfat and nonfat solids) from the previous month's Class III (cheese) and Class IV (butter/powder) prices, along with an added premium.

Do all states use the same milk classification system?

Most states are part of the Federal Milk Marketing Order system, which uses the four main classes. However, some states, notably California, have their own specific classification systems with additional subcategories. The general principles are similar, though specific product assignments may vary.

Can Class I milk be used to make Class II products?

Yes. A processor can use milk intended for fluid consumption (Grade A) to make manufactured products. The classification and pricing depend on the actual end use, so if they use fluid-quality milk for yogurt, it is priced and classified as Class II milk.