How low can milk prices go? Here's the latest trends.

There are four dairy commodities that control the pricing of producer milk, butter, cheese, nonfat dry milk (NDM), and dry whey.  The charts below are based on the latest Agricultural Marking Services (AMS) pricing of these commodities.  One commodity is stable and three are in deep falls.  The data below is very current including weekly pricing published just five days ago.

Butter wholesale prices have been amazingly stable in 2023 (Chart I).  In 2022, they averaged $2.90 per pound with a high of $3.24 and a low of $2.70, a range of $.54 per pound.  In 2023, the price averaged $2.40 per pound in a very tight range with a $2.50 high and a $2.38 low, a range of just $.12 per pound.  

The 2023 stable prices are very unusual.  In 2018 and half of 2019, butter prices were stable at a $2.26 per pound average.  In that time span, the high to low pricing was much greater than the current 2023 range.

Over the period of 2018 to 2023 wholesale butter prices averaged $2.17 per pound.  The 2023 average price is 10% higher than the six-year average.  The current butter prices are the most positive element in producer milk pricing, and they are at a reasonable level following three years of extreme volatility.  

Chart I - AMS Weekly Butter Prices

In the most current week ending July 14 the price of block cheddar cheese is at $1.41 per pound (Chart II), a low price not seen since 2018 (excluding the COVID volatility).  Barrel cheddar cheese is currently at $1.43 per pound (Chart III).  Typically, Barrel prices are lower than Block prices and this may signal a further drop in Barrel prices.

Cheese is the second most important commodity in pricing producer milk because it is used for Class III milk, the largest category and also partially used for pricing Class I skim milk.  See the June 11 post to this blog for more on domestic dairy consumption.  The Block and Barrel prices have been in a major fall in 2023 and that fall may not be over.

The AMS cheese prices use a blend of both Block and Barrel cheddar cheese prices.

Chart II - AMS Weekly Block Cheddar Cheese Prices

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Chart III - AMS Weekly Barrel Cheddar Cheese Prices

NDM prices, Chart IV, are primarily based on international prices of NDM and Skim Milk Powder (SMP).  NDM prices are very important as they price Class IV skim, Class II skim, and are used partially for Class I skim pricing.  Following cheese and butter pricing, NDM is the next most important commodity in producer milk pricing.  Through the COVID period there was significant pricing volatility.  The current international prices are well below the trends set in 2018 and 2019.  

Inflation and recession fears are a global issue.  This is influencing international dairy prices and that will likely not change in the near future.  U.S. exports of NDM are down in 2023 as international demand declined.  See the July 4 post to this blog.

Chart IV- AMS Weekly NDM Prices

Dry Whey (Chart V) is used to price "other solids" in Class III pricing.  It is the least important commodity in pricing producer milk.  The current AMS survey prices from last week are at a low not seen since early 2018.  Dry whey is a major export item and those exports are down.  See this prior post for more details.

Chart V - AMS Weekly Dry Whey Prices

SUMMARY

With these facts in mind, there is little chance of higher producer milk prices soon.  Increases in producer milk prices will require an increase in cheddar cheese prices and an improvement in international markets.  The next post to this blog will cover the most current data on domestic cheese wholesale inventories.  The level of inventories is the major influencer of cheese prices.

Size Matters - Where are the Biggest Producers?

The last post covered the stagnation of producer milk prices.  At the end of that post was a list of things producers have used to lower costs and improve revenue such as improved components, higher milk yields, better feed formulation, and larger operations.  There is very little published about the gains from increased size.  This post will cover where and by how much producer operations have increased to deliver a lower cost and increase revenue on a dairy farm. The analytics are based on "licensed to sell milk" farms.

The tables below define where dairy operations are growing.  Since the year 2000, dairy "farms" have grown from an average of 88 cows per farm to 337 cows per farm, an increase of 383%.  The number of farms have decreased from 105,250 to 27,932 a drop of 73%.  Why is this happening?  Economic pressures have forced producers to find ways to lower costs and increase revenue and a larger herd can produce more milk and reduce the full cost per cwt. of milk.

The bottom row of Table I shows where the U.S. is in cows per farm over the last 10 years.  The states listed in Table I are listed by the average size of the current herds.  New Mexico has been known for their large herds and at the end of 2022, they averaged 2655 cows per herd.  While New Mexico producers have run into some environmental problems, their operations are still very large.  Comparing the 2655 average in New Mexico to the national average of 337 cows per herd, shows what is possible.  The fluid milk states like Arizona and Florida are also increasing herd sizes and smaller producers are exiting as fluid milk sales decline.

Texas seems to come to the top of many lists and herd size is another example.  Texas is known for doing things big and the herd size growth of 131% over 10 years is another great achievement.  California is the largest dairy state and has an average herd size of 1544 cows.  South Dakota has grown recently with new and enlarged cheese plants.

The numbers in Table I are the averages for each state.  Many individual herd sizes are significantly bigger.

Table I - Cows per Herd Averages for Listed States

Table II expresses the growth in herd size using milk production instead of cow numbers.  This data set again shows the size of farms in some states that are hugely bigger than the U.S. averages. Increased milk per cow has helped expand the milk per herd as compared to the cow count in Table I.

Table II - Million Pounds of Milk for Listed States

Below are charts of five of the major dairy states showing the change in the number of licensed herds over 20 years.  There are tremendous differences.  Recognizing that fewer but larger herds are a key cost reduction technique for dairy producers, the variation between states shows where potential financial improvements could be made.  Chart I shows the fall from 105,250 licensed herds in 2000 down to just 27,432 in the U.S.

Chart I - The U.S. Transition
in the Number of Licensed Herds

Texas produced 16,530 million pounds of milk in 2022 (Chart II).  They are now down to just 320 herds in the state.  That calculates to the average pounds per herd of 52 million (Table II)..

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Chart II - The Texas Transition
in the Number of Licensed Herds

California is the largest dairy state and produced 41,860 million pounds of milk in 2022 (Chart III). They used milk from 1115 herds to produce this milk which is more than triple the amount from Texas.  The larger number of herds kept the pounds per herd at 38 million, 27% less than Texas.

Chart III - The California Transition
in the Number of Licensed Herds

Wisconsin is the second largest dairy state.  They produced 31,888 million pounds of milk in 2022.  They had 6530 herds producing this volume of milk (Chart IV).  The volume of milk is roughly double the amount produced in Texas.  They used 20 times more herds than Texas to produce that double volume.  That made their pounds per herd 5 million pounds, less than 10% the level of Texas.

Chart IV - The Wisconsin Transition
in the Number of Licensed Herds

Idaho is third largest dairy state and produced 16,584 million pounds of milk in 2022 (Chart V), very close to the amount produced by Texas.  The milk came from 480 herds which is 50% more herds than Texas.

Chart V - The Idaho Transition
in the Number of Licensed Herds

Pennsylvania produced 10,032 million pounds of milk in 2022, less than any of the above states. They used 5000 herds and averaged just 2 million pounds of milk annually per herd.  This difference compared to all the above examples is huge!  

Chart VI - The Pennsylvania Transition
in the Number of Licensed Herds

The point of the above charts is to show that there are changes available to push down dairy production costs and increase revenue through larger herds.  There are major hurdles to make changes from the formats of the past, but it can make a big change in the financially efficiency of producing milk.

Except for Butter, Producer Milk Prices Show no Growth in the Last Decade

The prior post covered the amazing growth in the price of butter and butterfat.  This post will show the pricing of the rest of the dairy products, all of which are showing slow to no growth in pricing.  Butter and butterfat seem to be the only price positive dairy products.  

The June 11 post, covered domestic consumption of key dairy products.  Domestic consumption was down. We are now seeing the same thing in exports.  Our two largest dairy exports are nonfat dry milk (NDM) and whey.  Exports of both are down.  They are byproducts of butter churning and cheese production.

NDM is used to price Class IV skim milk and in turn also prices skim Class I and II.  The current price is $1.16 pound (Chart I).  The average price of NDM for the last 23+ years is $1.14 per pound so the current price is about the same as the last 23+ years.  

NDM is primarily an export product and is the largest U.S. export product.  Mexico is by far the largest importer of NDM, and their purchases have increased in 2023.  However, sales to SE Asia, our second largest market for NDM, are way down.  Overall exports of NDM are down slightly in 2023 YTD compared to the prior year.

Competitive prices are low in the global market.  The export market is volatile and over time the price of NDM has ranged from $.70 per pound to $2.10 per pound.  Since 2007, there has been essentially no sustained growth in the price of NDM.  Because NDM is really a byproduct of butter churning, its major market is international at prevailing global prices.

Chart I - Changes in NDM Prices

Cheese wholesale prices dropped drastically from 2015 to 2019 (Chart II).  When COVID appeared, prices spiced and then fell.  Currently cheese prices are at $1.66 per pound.  The average cheese price starting with the year 2010 to the present averaged $1.76 per pound.  There are minimal exports of cheese, so the price is controlled by production and domestic demand.  Over the last ten years there has been no major sustained growth in wholesale cheese prices.

Chart II - Changes in Cheese Prices

The price of dry whey, a byproduct of cheese making, is shown in Chart III.  The price of dry whey is used to compute the price of "Other Solids" in Class III milk.  Over the span of 23+ years, the price of dry whey has doubled.   Dry whey prices hit a record high of $.79 per pound in March of 2022, but have fallen back to $.38 per pound in May 2023.  Dry whey has not seen any sustained price growth in the last 10 years.

A little more than half of dry whey is exported.  China is by far the largest buyer of whey products, with SE Asia in second place.  Both are down slightly in 2023.  Overall whey exports are down by 8% compared YTD to the prior year.

Chart III - Changes in Dry Whey Prices

The commodities above influence the Class skim prices of producer milk. The current prices of the four Classes of skim milk are compared below to the average prices since 2010.  The price of skim milk has fallen.  The current prices of all four Classes are below the average prices since 2010. The skim prices for these milk classes reflect the low prices of the above commodities used to price skim milk.

Table I - Comparative prices for Slim Milk

Chart IV - Base Class I Skim Milk Prices Since 2000

Chart V - Base Class II Skim Milk Prices Since 2000

Chart VI - Base Class III Skim Milk Prices Since 2000

Chart VII - Base Class IV Skim Milk Prices Since 2000

U.S. milk production is very cost effective.

How are producers able to continue with no increases in the value of their milk?  Dairy producers are capitalists.  Capitalism is a brutal environment and those that survive must continually innovate or fail.  Over the 23+ years of this post, milk production has changed drastically.  There are economies of scale, there is science in breeding increasingly productive cows, there are diets feed that allow improvements in components and milk volume, there is equipment automation, and there is a lot of other hard work.  Some countries have taken steps to preserve the way of life in farming, which simply means that there are minimal improvements.  The U.S. production of milk is financially tough on producers and constant changes are necessary.  There are no government financial props or bailouts.