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MFP$ doesn't fit the Virginia milk market very well

Dairy Pipeline: April 1997

by Bennet Cassell
Genetics and Management
Virginia Tech

MFP$ has been a useful way to combine PTA's for milk, fat, and protein on AI bulls for a number of years. Each milk component was assigned a value based on the previous year's average milk price and fat and protein differentials. The drawback to this system was that MFP$ was always a year behind and breeding decisions need to consider anticipated market conditions when progeny would be producing. The volatility of the 1996 milk market was the straw that broke the camel's back as far as using last year's prices for MFP$. Beginning with the February 1997 genetic evaluations, USDA established product values for calculating MFP$ which will remain unchanged until the next genetic base change. The objective was to anticipate future market values and get away from radical price swings such as we saw last year. Milk prices of $12.30 per cwt. for milk with differentials of $.08 for fat and $.20 for protein were chosen. With these prices, the formula for MFP$ became

MFP$ = $.031 (PTA milk) + $.80 (PTA fat) + $2.00 (PTA protein)

This move is commendable because of the stability it brings to MFP$ as well as for the effort made to project future market values. However, it also made MFP$ less appropriate for Virginia milk producers than it has ever been. No Virginia dairy farmer receives anything like $2.00 per pound for protein and most producers receive nothing at all. Don't try to compete with the producers in milk markets paying protein premiums for the top protein bulls unless you sell some breeding stock. You'd be money ahead to buy semen from top PTA milk bulls with lower evaluations for protein. Those bulls will tend to be priced lower than high protein bulls and will fit the local milk market better as well. USDA's change in MFP$ calculations, while commendable for producers in much of the country, appears to have increased the need for regional milk pricing indexes more appropriate to our market conditions.

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