Protein Demand Rises, but Will Milk Checks Follow?

Consumer demand for protein is hot. That’s driving whey prices higher at a time when most other parts of the dairy value chain are neutral to lower.

Since the pandemic, protein has been a focus for consumers looking to strengthen their immune systems and improve overall health.

Booming demand for something the dairy industry is naturally well-positioned to provide is a welcome development. But the path from high whey protein prices to higher milk checks is murky because of the way milk components are valued for most producers.

Since the pandemic, protein has been a focus for consumers looking to strengthen their immune systems and improve overall health. More recently, some of the rise in demand can be attributed to the widespread adoption of GLP-1 drugs like Ozempic, which are shifting appetites away from fattier foods and toward higher-protein offerings. Major brands now see opportunities to use whey protein to capitalize on this trend.

Recently, Starbucks introduced a line of protein lattes made with protein-boosted milk, delivering up to 36 grams of protein in a 16-ounce serving, compared with 13 grams in a traditional latte. PepsiCo also released new protein-enhanced products, including Propel Protein Water, which has 20 grams of whey protein. Some of these new developments benefit from advances in whey protein isolate, allowing for clearer whey protein formulations that work better with fruity and more acidic flavor profiles.

As a result, prices for high-protein whey concentrates and isolates have climbed while the rest of the dairy product complex has struggled or stagnated.

How Whey Prices Work Their Way Into Milk Checks

Will that mean a boost in the protein value on milk checks?

Most U.S. dairy producers are paid based on multiple component pricing. Milk checks are determined by the price of protein, milk fat and other solids, multiplied by the pounds produced of each component. The value of each is determined by the wholesale prices of cheddar cheese, butter, nonfat dry milk and dry whey.

With high-protein whey products in demand, more of the available whey stream is diverted to high-protein whey production and less to baseline sweet dry whey, tightening supply and lifting price, albeit indirectly.

Two things are important to bear in mind about how the whey price works its way into milk checks:

1. It’s not high-protein whey concentrates that are used in the pricing formulas. It’s sweet dry whey, which is more commonly used in baked goods.
2. Whey is not used in the calculation of the protein component of milk. The only component whey influences is “other solids.”

Even though sweet dry whey used in the milk price formulas is different from the in-demand high-value whey protein isolate and whey protein concentrate, the rising tide could potentially lift all boats.

With high-protein whey products in demand, more of the available whey stream is diverted to high-protein whey production and less to baseline sweet dry whey, tightening supply and lifting price, albeit indirectly.

But to the extent that the dry whey price is indirectly lifted, it will not be reflected in the protein price on milk checks. The protein price is primarily influenced by cheese (and butter, to a lesser extent). The factors driving consumers to seek out protein will not necessarily translate to a boom in demand for cheddar cheese that directly influences the protein price on milk checks.

While surging consumer interest in protein is a positive sign for the dairy industry, the benefits for farm-level milk checks may be limited by the way component pricing formulas work.

Understanding Component Values and Market Trends

Federal Milk Marketing Order pricing formulas, though recently modernized, still base all milk component values on the same four baseline commodity prices, regardless of whether new demand is driving innovative new products. For producers using risk management or insurance strategies based on component values, understanding how current market conditions affect those values is essential for setting realistic expectations.

While surging consumer interest in protein is a positive sign for the dairy industry, the benefits for farm-level milk checks may be limited by the way component pricing formulas work. Staying informed about how market trends and pricing formulas interact will help lead to more effective risk management.