If you build your January price sheet off last year's spread between Class III and Class IV milk, put that habit down for a season. Futures moving into the new year had Class IV pricing above Class III, a role reversal from the pattern most cheesemakers have priced against for years. It's not a huge gap, but it's the wrong direction, and it matters most for members whose contracts reference one class or the other without a true-up clause.
A quick refresher for anyone who came up through the retail side rather than the milk-buying side: Class III covers the milk that goes into cheese, and Class IV covers butter and milk powder. Comfortable spacing between the two — Class III sitting below Class IV — usually gives cheese producers some relief on their biggest input cost relative to other dairy uses. Once the two lines cross, that relief goes away right when holiday-week volume is at its highest and your co-op or supplier has the least patience for renegotiating terms.
What actually changed
Two things pushed the spread around this fall: components moved unevenly between the two classes, and the newer Class I "average of, plus" pricing formula changed how upstream volatility shows up downstream. Members on federal order milk have felt some of this already in their component statements even if nobody explained why. If your bookkeeper has been asking why the protein and butterfat lines don't reconcile the way they used to, this is why — not an error in your ledger, a change in how the order actually prices things.
Record U.S. dairy exports through 2021 are part of the backdrop here too — strong export demand has been quietly propping up milk prices even as domestic sales growth has been more modest, and that support doesn't disappear just because the class spread flipped. None of this is dramatic on its own. A cheesemaker running steady wholesale volume through December won't see much daylight between last year's invoice and this year's. But if you're the kind of shop that buys milk on a handshake and a spot price, or you're negotiating a new supply contract for the first quarter, go in knowing which way the wind is blowing. Ask your supplier which class their pricing actually references — some don't say, and you're entitled to know.
It also matters for anyone budgeting a spring cave expansion or a new piece of equipment against next year's margin. A wider gap between milk classes eats into the cushion you'd otherwise put toward capital spending, and a lot of members build that spring budget over exactly this quiet week between Christmas and the new year. If your projections assumed last year's spread, run them again with this year's numbers before you commit to anything you can't walk back.
What we'd do with a holiday week to spare
This is genuinely a slow week for a lot of member businesses between Christmas and the new year, and it's a decent window to do two things: pull your last twelve months of milk cost against your wholesale price sheet and see where the margin actually sat, and if you haven't already, ask your supplier for their first-quarter pricing basis in writing. A phone call works, but a written answer is the one you can hold them to in March.
We'll keep tracking the class spread into January and flag it again if the gap widens rather than closes. Members who buy on a federal order and want a plainer walkthrough of what Class III and Class IV actually mean for a small operation will find it baked into the pricing modules of Cheese Chemistry — worth a look before your next contract renewal, not after. It's the kind of thing that's much easier to understand in a quiet week than in the middle of a February negotiation, when you don't have time to go back to first principles.
The International Cheese Federation (ICF) and More Cheese are entirely fictional. This post is demonstration content created for MemberJunction. All people, organizations, events, courses, certifications, figures, and quotations in it are invented, and nothing here represents a real association, a real business, a real person, or real professional advice.