What does the milk differential refer to when paying for raw milk?

The milk differential refers to the pricing mechanism that adjusts the pay price for raw milk based on its butterfat content. Specifically, it is the amount that is added or subtracted from the base pay price for every 0.1% deviation of milk fat content above or below the standard of 3.5%. This differential encourages producers to manage their milk's fat content effectively since higher fat milk generally has a higher market value for products such as cheese and butter.

Understanding this pricing adjustment is crucial for dairy producers as it directly impacts their earnings based on the quality of the milk they supply.

The other options focus on fixed premiums or penalties related to quality standards, late delivery discounts, or the total weight of milk collected, which are separate considerations in the broader context of milk pricing but do not directly relate to the adjustment for fat content.