USA Milk Production - What is Going on?

Is the U.S. milk production growing or shrinking?  Which states are increasing production, and which are shrinking?  April 2023 milk production showed almost no growth compared to the prior year.  How did the major milk production states fare?

This post will review the long-term and short-term trends and the movement of milk production from one state to another.  The data used in these tables and charts are based on the most recent data through April 2023.  

The two Tables below rank the size of the six largest milk producing states. These six states produce the majority of U.S. milk. Table I ranks the six largest states based on the number of dairy cows.  Table II ranks the six largest states based on milk production.  California is by far the largest state in terms of cows and milk production, making up 18% of the total U.S. milk production.  Wisconsin is in second place. From there, Idaho, Texas, and New York are closely ranked in cows and milk production.

Pennsylvania is ranked sixth in cows but does not make the Table II list ranking milk production.  Michigan takes sixth place in milk production.  Michigan has the highest monthly milk producing cows with 2248 pounds of milk per cow.  Pennsylvania cows produced 1835 pounds per cow in the same timeframe,

Table I

Table II

The next set of tables ranks the state's growth in cows over the last five years (long-term) and the last 12 months (short-term). Over the last five years, the cow population in Texas has grown consistently now rivaling Idaho for third place in cow population and milk production.  However, Texas did not even make the list for their growth in the last12 months.  

South Dakota has seen a tremendous 58% growth in the last five years and is still growing.  Colorado and Kansas are also growing significantly.  What is behind the growth in these states?  All the growing states have new and enlarged cheese plants that are recruiting milk suppliers.  Texas producers are supplying multiple large cheese plants and have grown in the last five years.  As milk production was forced to leave New Mexico some moved to Texas.  Apparently, there is now enough milk to meet the requirements as there is very little Texas expansion in the last 12 months.

The growth can best be explained as chasing the cheese plants.  In-other-words, the cows and milk production follow where the cheese production is expanding or moving. 

Table III

Table IV

Tables V and VI show where the cows are moving from.  Florida, which has always been the smallest Federal Order, has further decreased production by 25% over the last five year.  The decrease in production has continued in the last 12 months. Florida and Arizona are both dependent on Class I fluid milk which is declining.

New Mexico has suffered financial issues and have been dealt a blow with contaminated water.  It is continuing to reduce the cow population.

Wisconsin over the last 12 months has seen a slight decrease in cow numbers.  More information on Wisconsin is covered later in the post.

Pennsylvania has a 27-month continuous decrease in cows and milk production.

Table V

Table VI

Charts I through VII below cover the growth or decline of milk production in the U.S. and in the largest six milk producing states listed in Tables I and II above.

The following seven charts are listed in the order of their size. The total USA chart indicates a slowing growth of milk production.  The state charts are also generally showing long-term decreasing levels of milk production. In April 2023, the most recent month available, they are showing negative to minimal growth.   California, the largest dairy state continues to lose milk production.  Wisconsin had good growth in 2021 but beginning with 2022 production increases have dropped to just 0.4% annually.  Some of this milk production has moved to South Dakota which has new and expanded cheese production.  Idaho and New York are maintaining their levels.  Michigan is showing increases in 2023, up from significant decreases in 2022.

Is there enough milk to meet both domestic and export demand?  More on that in an upcoming post to this blog. 

Chart I - USA 

Chart II - California

Chart III - Wisconsin

Chart IV - Idaho

Chart V - Texas

Chart VI - New York

Chart VII - Michigan

CONCLUSIONS

For the last two years, milk production has grown at less than one percent.  The six largest producing states have a five-year decreasing trend.  Where is the milk going?   Fluid milk is declining but cheese is a larger share of the pie and has been increasing in consumption.  Butter consumption has been increasing.  The next post will quantify how consumption of dairy is currently doing.

 

Why are Milk Prices Down?

Producer milk prices are down significantly in 2023.   Why?  This post will look at some of the reasons for this decline.  It will review the price movement of the three commodities that have the most influence on producer prices, butter, cheese, and nonfat dry milk (NDM).  NDM pricing is primarily an export item and will be covered in the most detail.

Table I below shows the change in the Agricultural Marketing Service (AMS) pricing of these three commodities.  Since October of 2022, all three have taken major losses.  In just six months, butter prices have dropped by 25%, cheese prices have dropped by 13%, and NDM has dropped by 27% (Table I).

Table I - Butter, Cheese. and NDM Prices

Chart I below displays the pricing of these three commodities.  It is a coincident that all three peaked in October of 2022 and continued falling in price to the most current prices in April 2023.

Chart I - Price of Butter, Cheese, and NDM in 2022 and 2023

Chart III covers the long-term pricing of these commodities over the last 24 years.  Butter pricing has increased like a rocket ship, over 100%, cheese pricing has made a modest increase of about 50%, and NDM has increased the least with about a 30% increase.  

To project the future, long-term trends are better than wild guesses and crystal balls.  With the trends in pricing, there are some pricing formulas that create additional producer price declines.  Here is one clear issue.

The milk protein price formula is based on the price of cheddar cheese plus a factor to increase the protein price because butterfat is worth more in cheese than in butter.  As butter and butterfat prices have increased more than cheese prices, butterfat is now more valuable in butter than in cheese.  That has revered the impact of protein pricing by making that impact of butterfat in cheese calculation go from positive to a negative, in turn reducing the price of milk protein and lowering the revenue paid to producers.

Chart II - The Long-Term Pricing of Butter, Cheese. and NDM.

The remainder of this post will look closely at the NDM pricing to see some of the factors reducing NDM pricing.  With the new Class I formula change mentioned above, NDM is significantly impacting overall producer pricing.  The fact that NDM is an export product, can bring new factors, like exchange rates and global events, into the pricing as compared to domestic cheese pricing.

Some of the charts below include both NDM and skim milk powder (SMP), similar products but with significantly different specifications.  The U.S. Trade and Tariff database does not have specific codes for the two products but combines them under one harmonized code.  For more on the differences, see this prior post.

The growth of NDM started in 2008 and has grown significantly since then (Chart III).  It has grown faster than butter production as new export markets for NDM have been developed.

Production increases can bring oversupply, but domestic inventories are not increasing (Chart IV).  Global inventories may be increasing.  Because NDM is a byproduct of butter churning, the priority is to sell the product at lower prices if necessary.

Chart III - NDM Production Long-Term

Chart IV below displays the domestic inventories of NDM and SMP.  It's easy to see that inventory levels have been very stable despite the growth of production.  This factor alone should bring higher prices for NDM, not lower.

Chart IV - Domestic Inventory of NDM and SMP

How much NDM and SMP are exported? From Chart V below its easy to see that the amount of NDM and SMP exported continues to climb.  It reached a high of 92% in 2021 and then fell to the 70%s in 2022 and the latest export percent is 43%.  That signals that exports have taken a drastic fall in the last three months!

Chart V - Percent of exports in disappearance 

Where do the exports go?  Mexico is by far the largest importer of NMD/SMP (Chart VI).  Their average imports have been around 70 million pounds per month.  In the latest available month this has jumped to 94 million pounds which represents 55% of the total exports in March 2023.  Its doubtful that consumption has increased that much, but more likely it is due to favorable price for a buy in.

Chart VI - Mexico Imports of NSM/SMP

The Italian Dairy Economic Consulting firm CLAL publishes competitive prices for many different dairy products and global locations.  They do show the tremendous price drop of NDM and SMP (Chart VII). which matches very closely to the AMS prices of NDM.  So, the basis of the low U.S. NDM prices is the global price.  (There database is also showing a global downturn in cheese and butter prices.)

Chart VII - Export Prices FOB U.S. West Coast from CLAL

Butter and cheese prices can be analyzed with domestic analytics, but NDM is more difficult to analyze due the changing global environment.  Because NDM is produced only by the U.S., it does not enjoy the broad market of SMP which is defined in the CODEX by the World Trade Organization (WHO).  Some SMP is produced in the U.S., but sales are much smaller than NDM.  NDM must be sold to avoid inventory buildups, but SMP can be produced to meet demand.  

Does it make sense that NDM is used to price Class I fluid milk?  More on this in future blog posts.

Location Matters for Producer Revenue

Every milk producer wants to maximize his revenue.  Advice centers around efficient operations, maximizing components, etc.  Some of the revenue is not in a producer's control such as the value of cheese, butter, and other solids.  This post will take a very different approach.  The location of the producer's operation can also significantly impact revenue.

The majority of U.S. milk is paid for based on the Federal Order pricing which sets a minimum price for producer milk.  The payment system is somewhat complicated.  Being in the right place can make a big difference.

As an example, in March of 2023, prices in different Federal Orders varied from $18.29 per hundred weight to $23.51 per hundred weight.  The location difference is based on the Class mix of milk in a Federal Order.  That mix can come from the needs in a Federal Order and that blend can be significantly varied based on de-pooling.

One way of comparing the milk prices is by the Uniform price of each Federal Order.  The table below shows the Uniform price of eight Federal Orders for 2019, 2020, 2021, and 2022.  The reason for listing only these Orders is that the three in the Southeast U.S. are major Class I producers which do have the advantage of high prices, but a declining market,.

In each of these four years, the ranking is similar with a few exceptions.  The Northeast Federal Order ranks at the top of the list each year.  Other Federal Orders like the Southwest ranked second in 2019, but fell to fifth place in 2020.  The Upper Midwest was at the bottom of the list in 2019 but rose to fifth place in 2021 and 2022.  California has moved from fifth place in 2019 to last place the following three years. 

At the top of the chart, the Northeast has two things in its favor.  It has a very balanced mix of milk Classes and has strict rules for de-pooling which helps maintain that balance.  Class I milk is 31% of the mix in 2019 and then maintains a stable 30% for the next three years.  The pie charts for each year look nearly identical.  Class III milk for cheese is the second largest piece of the pie, varying from 26% to 29%, a minimal change.

California is the other extreme.  All four pie charts below look entirely different and are entirely different.  Why is the California mix so volatile and at the bottom of the Uniform price charts?

When California had its own payment system, no milk could be de-pooled.  The conversion to a Federal Order on November 2018 allowed any milk except Class I to be de-pooled.  Major de-pooling began immediately in the first month.  California's natural mix of milk Classes includes a lot of Class III milk for cheese and a large amount of Class IV milk (about 33% of U.S. butter comes from California).  California's de-pooling rocks back and forth from near total Class III milk de-pooling to near total Class IV milk de-pooling.  In the 2020 pie chart there was almost no Class III milk and in 2022 there was very little Class IV milk.  The highest priced Class is de-pooled lowering the average Uniform price for those remaining in the Federal Order pool. 

The Upper Midwest is also unique.  Almost all the Upper Midwest milk goes to cheese production.  However, when cheese prices are high, a lot of Class III milk is de-pooled.   In years like 2020 and 2021, more than half the Class III milk was de-pooled.  When that happens, the other Class percentages appear bigger but only because the Class III is much smaller.  In 2021, more than 16 billion pounds of Class III milk was de-pooled in the Upper Midwest.

What does de-pooling do?  It moves money around.  It does not increase the amount of money and in some cases, it may reduce total producer revenue.  

Does location make a difference in Federal Order prices?  ABSOLUTELY!