Sunday, December 10, 2023

Annual Per Capita Consumption of Dairy Products


At the end of November each year a report on per capita dairy consumption is compiled based on data from the USDA, Agricultural Marketing Service, and others.  The report is an annual compilation through the prior year, in this case, 2022.

This post will cover the long-term growth or decline of major consumer dairy products which includes cheese, fluid milk, butter, yogurt, and ice cream.

Most of the data below is based on per capita consumption.  The population of the U.S. grew by 0.4% in 2022 slightly increasing the total volume of consumption compared to per capita consumption changes.

CHEESE

The largest use of milk is for cheese, and the consumption rate shows significant and steady gains (Chart I).  The 2022 gain in pounds per capita consumption is record setting with an increase of 1.4 pounds per person.  During the year cheese prices have been at long-term levels, increasing purchases (see Chart IV in this post for details).

The news is both good and bad.  The increase in cheese consumption is certainly a positive for dairy producers, but the stagnant cheese prices are keeping milk protein prices low.  

Chart I - Per Capita Cheese Consumption 
Chart II - Percent Change in Cheese Consumption

BUTTER

Butter per capita consumption has a long history of increases, but in 2022 consumption fell.  In 2022, wholesale butter prices increased, setting record highs and causing higher retail prices.  There has also been concern about saturated fats, but the most impactful reason for the decrease in consumption is higher consumer prices.

Chart III - Per Capita Butter Consumption
 
Chart IV - Percent Change in Butter Consumption

BUTTERFAT IMPACT

What changes the demand for butterfat?  By far, the largest use of butterfat is for cheese.  In 2022, 42% of butterfat went into cheese.  Only 17% went to butter.  Even though butter consumption went down, because of the increase in cheese consumption the demand for butterfat went up in 2022.  In turn, butterfat prices have increased.  As mentioned in many prior posts, as butterfat prices go up, milk protein prices go down.

Chart V - Butterfat Usage in Dairy Products

FLUID MILK

The decline in fluid milk is very long-term (Chart VI).  Fluid milk is declining by nearly equal volumes of 3 pounds per year per capita.  Therefore, the percentage drop is increasing (Chart VII).  Fluid milk is now rarely seen on the dining table as a beverage.  The introduction of plant based "milk" has also certainly taken its's toll on fluid milk sales. 

Whole milk as defined by the USDA as 3.5% butterfat and it is the largest usage of fluid milk representing 37% of fluid milk sales.  Whole milk has maintained its volume over 23-years losing only 5% of volume. Sales of milk with 2% fat makes up 32% of sales.  The remaining types of milk like 1% fat and fat free are declining fast.

Chart VI - Per Capita Fluid Milk Consumption
Chart VII - Percent Change in Fluid Milk Consumption

ICE CREAM

The amount of ice cream consumed per capita continues its long-term decline.  Nevertheless, it is still in fourth place in terms of butterfat usage.  Over the 23-year span, ice cream demand has fallen by just 17%.  The butterfat in ice cream is 7% of total butterfat usage.

Chart IX - Per Capita Ince Cream Consumption
YOGURT

Yogurt was growing fast in the period between 2000 to 2013.  It then abruptly leveled out.  It has remained steady for the next decade.  The amount of butterfat used in yogurt is less than 1%.

Chart VII - Per Capita Yogurt Consumption

SUMMARY OF DAIRY CONSUMPTION

The recent changes in per capita consumption are primarily the result of price changes.  The price of butter has gone up and the volume of consumption has fallen.  The price of cheese has been stable. and the volume of sales has increased.  Cheese is the clear dairy growth product with a steady increase of 70% over 23 years.  Butter has also grown over the 23 year span with a 64% growth in volume. Butter did. have a decrease in 2022 because of pricing.  Fluid milk, ice cream, and yogurt are not growth products.

Sunday, December 3, 2023

Milk Production and Wall Street are Similar.


Milk production and Wall Street have similar financial profiles.  They both have an opportunity for long-term financial gains and they both have significant financial volatility.  Success in investing can show huge losses at times, but in the long-term a balanced portfolio will show significant financial gains.  The near-term emotional reaction when the market is falling is to sell, cut losses, and try to invest in more stable things like short term bonds or just hold on to cash.  The financial advice for long-term investments is to ride out the lows, take advantage of lower prices to continue to build a portfolio and wait for the market to improve.  Milk production can be the same.  The real winners, as covered in the prior post, continue to build herds with higher components and more milk per cow to maximize current revenue and be ready for the upturn in component prices.

Recently there have been articles in dairy publications that say the butter prices that have gone up must now fall back.  That is true for the short-term.  The short-term decision would be to discontinue the costs to increase components and milk pre cow and reduce the cost of improving herd productivity.  

SHORT-TERM COMMODITY PRICE TRENDS

Below are the most recent weekly charts of the Agricultural Marketing Service (AMS) prices for butter and cheese, the foundations for producer milk pricing.  

Butter prices have fallen from $3.33 per pound in September to $2.77 per pound in the most recent week.  That is a 17% drop in a short time.  However, even $2.77 per pound is at record highs.

Cheese prices have fallen from $1.95 per pound in September to $1.72 per pound in the most recent week.  That is a 12% drop also in a short time.

Is it time to change modes and start reducing costs even if it reduces revenue?  Would a Wall Street investor recommend liquidating investments with a short-term drop?

Chart I - Weekly Butter Prices

Chart II - Weekly Cheese Prices 

LONG-TERM COMMODITY PRICE TRENDS

The success of long-term investment in milk production is shown in Charts III and IV below.  Over time, commodity prices do increase as retail and wholesale prices of butter and cheese increase.  Recently, the monthly price of butter has dropped by 6% and cheese prices have dropped by 10%.

Is it time to change practices to reduce cost?

Chart III - Long-Term Butter Prices 

Chart IV - Long-Term Cheese Prices

LONG-TERM BUTTERFAT PRICES

Charts V and VI show the change in the value of butterfat and milk protein.  

In 2020, as COVID "stay at home" policies were implemented, butterfat pries fell sharply.  By 2022 butterfat prices returned to their long-term trends.  In the most recent weeks, butterfat prices have dropped by 7%.  Protein prices have dropped by 20% to a decades long record low in October before recovering somewhat in November.

When cheese prices are stable and butter prices increase, the value of milk protein drops.  The extreme drops in butter in 2020 and 2021 coincide with the COVID "stay at home" policies.  When the butter price went down, the protein price hit extreme highs. The opposite has happened in 2023.

Chart V - Long-Term Butterfat Price

Chart VI - Long-Term Protein Price

In the November 7 post, the long-term success of investing in cows and feeds which produce higher components and more milk per cow.   Charts VII and VIII show the gains in Federal Order butterfat levels of the two highest butterfat level Federal Orders, the Pacific Northwest and the Upper Midwest.  They both show the impact of long-term investing.  Both took a brief drop during the COVID mandates, but otherwise show a consistent annual growth in percent of butterfat levels.

Chart VII - Butterfat Levels in the Pacific Northwest Federal Order

Chart VIII - Butterfat Levels in the Upper Midwest Federal Order

How is milk production like Wall Street?  In both cases some are day traders, and some are long-term investors.  Success in volatile markets requires a steady hand and the ability to weather tough times.  

Wednesday, November 15, 2023

Where are the Most Productive Cows?


In the last post, the long term economic impact of increasing components was reviewed.  One of the reasons components increased was by increasing milk production.  Over the last 23 years milk production per cow increased by 30%. There have been many questions on this, so this post will cover more details on the increase in milk production per cow.  In some states there have been no increases in milk production per cow and the biggest increase was 90%.

To review where the cows are, below in Table I, the 10 largest milk producing states are listed.  California and Wisconsin make up nearly 32% of the total U.S. dairy cows.  Idaho, Texas, and New York make up another 20%.  Pennsylvania, Minnesota, and Michigan make up 11% and New Mexico and Washington make up 6%.

States with the Most Cows

Table I - States with the
Most Cows in 2022

States with the Most Milk per Cow

The 10 states with the largest milk per cow are listed in Table II.  Six of the 10 largest milk per cow states listed in Table II and listed in the top ten largest dairy states in Table I and most are in the top five in dairy cows.  Missing in Table II is the largest dairy state, California.  Wyoming is a very small dairy state with a very high ranking in milk per cow.  Nebraska, New Mexico, and Nevada made the top ten in milk per cow, but are much lower in total dairy cows.

Table II - States with the Highest
Milk per Cow in 2022

Conclusion:  The largest dairy states (Table I) tend to use the most productive and financially sound methods for low cost and high revenue milk production. 

States with the Largest Increases in Milk per Cow

Table III lists the 10 states with the largest percent increase in milk per cow over 23 years.   Again, four of the 10 listed are in the 10 largest dairy states.  They are Texas, Wisconsin, New York, and Michigan.  Again, the largest dairy state, California, is not in the list.

Table III - States with the Largest
Percent Increase in Milk per Cow

How did the Four Large Dairy States Attain the Best Growth in Milk per Cow?

Charts I through IV below show the increases in milk per cow for the four large dairy states that have the largest and fastest growth.  They all show extremely similar and consistent growth over a long term.

Chart I - Texas Annual Milk per Cow
Chart II - Wisconsin Annual Milk per Cow
Chart III - Michigan Annual Milk per Cow
Chart IV - New York Annual Milk per Cow

Which States have the lowest growth rate in the U.S.?

Table IV lists the 11 states that have the slowest growth in milk per cow.  The list includes 11 to capture California, the largest dairy state in the U.S.   Why is California ranked near the bottom in its ability to increase milk per cow?  

Table IV - Slowest Milk per Cow
Growth States

Conclusion

Some states seem to be leading the trend to cows with higher productivity.  There are many things that can influence milk productivity.  One recent paper detailed the influence of cow comfort.  There are of course many other factors that influence milk per cow.  There is no doubt that higher milk productivity can increase revenue and cash flow.

For companies providing advice on increasing productivity, it makes sense to market to the states that seem to have the most interest in increasing productivity.

Tuesday, November 7, 2023

The Financial Impact of More Components per Cow

Cheese now utilizes over 50% of the U.S. milk produced. Cheese and other dairy items need only components, not milk volume.  Fluid milk continues to decrease in consumption.  Butterfat is at record high prices, and milk protein is at decent prices.  Are these prices just temporary?  What can a producer do to deliver milk that meets the current needs and provides adequate revenue?  This post will quantify the financial impact of changes in component pounds and prices over the last 23 years.  It appears that the increase in component prices and the increase in component levels are not a short term events.

The October 15 post showed the monthly component level changes over the last six years including the first 10 months of 2023.  Chart I below illustrates the annual butterfat percent from 2000 to 2022.  The increase in average butterfat levels is dramatic.  Today's cows are producing 10% more butterfat in their milk on the average.  That is the average, many are producing at much higher butterfat levels.

The increase in butterfat levels began in 2011 and has not stopped.

Chart I - Annual Butterfat Percent

The same is true of milk protein levels which are up 7% over this same time period as displayed in Chart II below.  Protein levels were increasing in the first 10 years of Chart II, and in 2011 began increasing at an accelerated rate.

Chart II - Annual Protein Percent 

Charts I and II are the averages for all Federal Order dairy cows. Every producer is paid for butterfat.  In seven of the Federal Orders the producers are also paid for the pounds of milk protein.  Many producers are maximizing revenue by using the proven tools to successfully increase butterfat, protein, and revenue. 

Further boosting revenue is the increase in milk per cow (Chart III).  Over the time span used in this post, milk per cow has increased by over 30%.  With that increase in milk comes higher quantities of components.

Chart III - U.S. Annual Milk Production per Cow
How has the value for these components changed over 23 years?  Chart IV displays the producer prices for butterfat and protein.  Comparing 2022 to 2000, butterfat prices have increased by 160% and protein prices have increased by 60%.
Chart IV - Average Annual Price of Butterfat and Milk Protein
If you put all these numbers together, how much does that increase revenue per cow? The impact is huge and certainly shows how producers can survive and grow.  Butterfat revenue per cow has increased from $948 USD to $3221 USD per cow annually.  That is a 240% increase per cow!  Milk protein revenue has increased from $856 to $2152 per cow, a 150% increase.

Milk protein prices did have a brief increase during the start of COVID.  It now appears to be declining and butterfat is inclining.
Chart V - Revenue per Cow for
Butterfat and Milk Protein
 
Those paid on the Component system (the majority of producers) received the combined revenue for butterfat and milk protein making the revenue increase grow from $1804 to $5374 per cow, a 200% increase (Chart VI).
Chart VI - Combined Revenue per Cow for
Butterfat and Milk Protein 
The October 15 post  discussed the 2023 additional increases in component levels.  Milk per cow will also likely show increases in milk per cow in 2023.  Increasing pounds of components in milk is vital to producer survivability and financial success.  Many techniques like breeding, cross breeding, adding fats to diets, amino acid balancing, and other techniques can increase components.  Amino acid balancing brings higher levels of both butterfat and milk protein and increases milk volume.  As an additional benefit, it also improves animal health.


Sunday, October 29, 2023

Where are Milk Prices Going?


Producer milk prices are based on the wholesale price of four dairy commodities: butter, cheese, nonfat dry milk (NDM), and dry whey.   The Agricultural Marketing Service does a weekly survey of these wholesale commodities.  At the end of the monthly period, those survey results are combined to calculate the price for butterfat, milk protein, and "all other" for Class III milk and Class IV skim milk.  The monthly periods are based on 4-week and 5-week averages.

Following the weekly surveys can provide an accurate prediction of month end prices for the milk solids listed above.  
________________

Butter prices are hitting record levels.  In early 2023 butter prices fell significantly, reaching a price of $2.38 per pound.  In the most recent weekly survey, butter prices hit a record high of $3.33 per pound.   The previous high for a month was $3.19 per pound in October 2022.  If a whole month was valued at $3.33 it would result in a producer price of $3.82 per pound for butterfat, which would be a record high.
Chart I - Wholesale Weekly Butter Prices
Clearly, maximizing butterfat production should be a top priority for milk producers.  Butterfat prices have been on a decades long increase.  With a trend that long, there is no reason to not take advantage of the record setting current prices.  See the prior post on the increased levels of butterfat in milk.
_________________

Cheese prices are key to Class III skim milk prices.  Milk protein is the major component in pricing Class III skim milk.  Unfortunately, as butter prices rise, milk protein prices decrease.  The formulas for protein pricing were also covered in the prior post.

The current weekly price of $1.71 per pound is not a bad price and is near historical prices.  The 24-year average price for cheese is $1.82 per pound.  Over the course of Chart II below, the average price was $1.80 per pound.
Chart II - Wholesale Weekly Cheese Prices
Cheese prices have shown relatively limited growth over the last 10 years as shown in Chart III.
Chart III - Cheese Prices Over the Last 10 Years
There is little reason to expect a major change in cheese pricing.
_________________

Other Solids are priced based on the price of dry whey.  Their contribution to overall producer milk pricing is minimal.  Currently, prices are relatively low.  Dry whey is a byproduct of cheese making and must be sold at prevailing domestic and international prices.  The supply of whey is only dependent on the volume of cheese production and must be sold at the current prices.

Chart IV - Wholesale Dry Whey Prices
_________________

The remaining commodity is NDM.    It's pricing is used to price Class IV skim milk and in turn is also used to price Class II skim and partially price Class I skim.  The market is primarily international sales with sales to Mexico, a valuable customer.

Chart V - Wholesale NDM Prices

The current price of $1.16 per pound is close to the 6 years average price of $1.17 per pound for the period shown in Chart V.
_________________

In summary, the commodity that is exhibiting the best price and the best price growth is butter.  As a result, the milk solid to emphasize is butterfat.  As mentioned in the prior post there are many techniques to increase butterfat.  Balancing amino acids is one technique that can also improve milk protein and cow health. 

Sunday, October 15, 2023

Sustainablilty and Making Money

The new buzzword for the dairy industry is sustainability.  The USDA defines sustainability as "Sustainable agriculture is farming in such ways to protect the environment, aid and export natural resources and to make the best use of nonrenewable resources."  Dairy needs to provide food that is desirable, healthy, and affordable.  U.S. dairies are doing just that.  Today's dairy products primarily need healthy components, like butterfat and protein.  When the amount of these components in milk increases, the needed components can be supplied with fewer cows and at lower cost.  This post will cover the trends that accomplish these requirements.

The data used in this post is Federal Order averages.  Individual producers do achieve significantly higher levels of components. 

BUTTERFAT

Chart I shows the trends in butterfat production as a percent of milk.  The increases are steady and ongoing.  How long can these trends continue to grow?  The gains are clearly not slowing down.  From the beginning on 2018 to the most current month of August 2023, butterfat in milk has increased from 3.83% to 4.09% (Chart I).

Chart I - Average percent of Butterfat in Milk

The increases in butterfat volume are growing by over 1% annually (Chart II).  A producer with 3000 cows with each producing 30,000 pounds of milk annually would get 36,000 more pounds of butterfat than the prior year.   

90,000,000 pounds of milk with 4% butterfat and increasing butterfat by 1% annually = 36,000 more pounds of butterfat annually

The increase builds annually.  If at 4% butterfat, a one percent increase would make the butterfat percent go to 4.04% and the next year to 4.08% etc. Using protein's current price of $3.13 per pound, the producer would get $113,000 more revenue than the prior year with no additional cows.

Chart II - Annual Percent Growth in Butterfat
The Federal Orders with the highest and lowest percent butterfat are listed below (Table I).  The four with the lowest butterfat content are the four Federal Orders paid on the Advanced prices.  These four do get paid for their butterfat just like those paid on the Class and Component prices.
Table I - Butterfat Percent
by Federal Order
MILK PROTEIN

Milk Protein has also seen similar increases in production.  Over the last three years, protein volume in milk has grown by 1% annually, increasing protein levels from 3.15% at the start of 2018 to the present at 3.24% (Chart III).
Chart III - Annal Percent of Protein in Milk
What is that worth?  Following the math used for butterfat above, with 3000 cows producing 30,000 pounds of milk annually the producer would get a revenue increase of $67,000 annually.

(90,000,000 pounds of milk with 3.26% protein with a 1% increase over prior year = 29,000 more pounds of protein)

Priced at the current price of $2.30 per pound, the producer would get $67,000 more revenue than the prior year based on increased protein production.  This would be cumulative every year.

Chart IV - Annual Percent Growth in Protein

Protein is paid for in the seven Federal Orders paid on the Class and Component system.  As shown in Table II, the .23% spread between the seven Orders is relatively small, compared to the .54% spread for butterfat shown in Table I.

Table II - Protein Percent
by Federal Order
SOMATIC CELL COUNT

Somatic Cell Count (SCC) is included in the published component data and will therefore be included in this post.  Since the SCC broke the 195,000 cells per milliliter level, there has been no significant improvement in lower SCCs.  The Upper Midwest and the Mideast have the lowest SCCs at 178,000 somatic cells,
Chart V - Average Somatic Cell Count

SUMMARY

The gains in volume for butterfat and protein are a tremendous improvement for both sustainability and for improved producer revenue.  There are various technics for improving butterfat.  There is one main improvement for increasing milk protein and that is amino acid balancing cf feed.  Amino acid balancing also improves butterfat volume creating a combined return on the investment for feeding the proper level of needed amino acids.  The technology has been practiced for a long-time and is well proven.

Sunday, October 8, 2023

Dairy Prices Show Some Improvement in 3rd Quarter

Producer milk prices have fallen tremendously in 2023.  The big question is "When will prices improve to make milk production profitable again?"  The reasons for the fall in prices was covered in a recent post.  This post will look to the future to see when and by how much producer milk prices may increase.  The volatility during the span of data in this review is tremendous.  Three-year trends and quarterly price changes will be reviewed in this post. 

Butterfat prices have been a big contributor to the producer milk price and will be reviewed first.  Butterfat values increased tremendously in 2021 and most of 2022.  Then butter consumption declined (see the September 10 post) and the Butterfat price declined by 25% in three months.  Recently producer butterfat prices have started increasing and may reclaim the higher prices in the fourth quarter of 2023.

Chart I - Butterfat Prices for 2022 through 2023
Butterfat prices grew tremendously in late 2021 and all of 2022 (Table I).  Immediately in 2023 the prices dropped and have remained around $2.74 per pound for the first six months.  In the third quarter of this year the butterfat prices started increasing.  This will likely continue in the fourth quarter and will reach $3 per pound pricing.  This increase will be a strong factor for all dairy producer pricing in 2024.
Table I - Quarterly Butter Prices for
2021 Through YTD 2023

Protein prices have dropped continuously in 2021 to 2023.  This is partially caused by increasing retail butter price. From the highs in May 2022 to the lows in July 2023, the value of milk protein decreased by 70%.  However, from July to September 2023, prices nearly doubled (Chart II).  The question now is "Will the future months continue to increase?", or will they follow the overall decline of the last three years?

Chart II - Milk Protein Prices for 2022 through 2023

Table II compares the quarter-by-quarter milk protein prices from the prior year.  Cheese prices, which largely control the protein prices are relatively stable with the prior year.   As butterfat prices increase, milk protein prices decline.   Below is the simplified formula for pricing milk protein.

Milk Protein = 3.22 x AMS cheese Price - 1.05 x AMS butterfat price - $5.65

The current milk protein prices indicate no further decreases or increases with pricing stability for the near future.  

Table II - Quarterly Protein Prices for
2021 Through YTD.2023
Nonfat dry milk (NDM) prices peaked in 2022 with 62% increases from January 2021.  With the formula changes implemented in May 2019, NDM milk prices influence the skim prices of Class I, II, and IV milk.  The NDM price is controlled by international prices as the majority is exported.  The decrease in international demand for NDM and skimmed milk powder have lowered prices    Until the international dairy market stabilizes prices will remain low but stable.
Chart III - Nonfat Dry Milk Prices for
2022 through 2023
Table III - Quarterly NDM Prices for
2021 Through YTD 2023
In summary, producer milk prices are headed upward with further increases in butterfat prices and stability in protein and NDM prices.  This should increase producer milk prices, but the prices changes will be small.