What 2023 Momentum will influence 2024 Dairy Prices?

Producers get paid primarily for their components.  The prices of components, published by the Agricultural Marketing Services (AMS), are really indexes based on standardized levels of components as they were in the year 2000 when the current payment system was established.  Over 24 years, there have been some significant changes in productivity.  See this recent  popular post on 24 years of changes.

• Fluid milk was the main usage of milk in 2000.  It is now cheese.
• The AMS payment program was developed to make sure Class I milk was the highest paid.  Now, with every year Class I fluid milk consumption decreases and cheese consumption increases.
• In 2000, most milk came from small farms.  Small farms are disappearing at an increasing rate.  As an example, Michigan lost over 400 primarily small farms in 2023.

Many articles have been published about 2023 being a tough year for milk producers.  This post will review the trends from 2023 and how they might influence 2024 pricing.

The basic prices for butterfat, milk protein, and nonfat dry milk (NDM) are covered below.  

BUTTERFAT

Over the last three years, butterfat prices have found new record highs. In October 2023 butterfat prices established a new record high of $2.71 per pound.  Prices fell a little in December, but the trend lines are still very positive (Chart I).

The butterfat pricing parameter can be checked off as good news going into 2024.

Chart I - Butterfat Price from 2017 through 2023

Butterfat levels in milk continue to reach new highs, with November at an average of 4.28% (Chart II).  The level of butterfat is not just continuing to grow but is growing at an accelerated rate.  The 4.28% is an average for all the Federal Orders.  The highest levels remain in the Pacific Northwest with a November near record average of 4.58% butterfat.

That is the second parameter to check off as good news going into 2024.

Chart II - Butterfat Levels from 2017 through 2023

PROTEIN

The price of milk protein has been a volatile ride over the last seven years.  During the COVID period prices reached an unbelievable $5.62 per pound in July 2020.  Well, those days are long gone with milk protein prices reaching a near record low of $1.04 per pound in October 2023.   The only time it was slightly lower was in November 2000.  The trend lines look horrible, but will hopefully improve in 2024.  

Regardless, this parameter has to be put in the bad news category going into 2024.

Chart III - Protein price from 2017 to 2023

But there is good news in terms of producers keeping the momentum of protein component levels high and increasing.  The average November Federal Order level of 3.38% protein is a record.  The Pacific Northwest continues to dominate with 3.57% protein.  The trend line is showing accelerating protein levels.

The record protein levels, and the current trends puts this parameter in the good news category.  That makes three out of four in the "good news" category so far.

Chart IV - Protein Levels from 2017 to 2023

NDM

NDM has come to be important in producer milk pricing starring in 2019 and is now used in pricing of skim milk in Classes I, II, and IV.  NDM is an export item with most exports going to Mexico.  Pricing must be competitive with skimmed milk powder in the international markets.  The supply and demand factors are cloudy for this product because it is not produced based on demand, but instead must be sold as a byproduct of butter production.

The current prices have been stable for the last five months with no reason to expect any changes.  Going into 2024 there is no reason to expect any good or bad news.

Chart VI - NDM price from 2017 to 2023

One of the major parameters for success covered in the November post is the 24 year increase in milk per cow.  With more milk, comes more components and revenue.  

Unfortunately, the 24-year long-term trend decreased in 2023. Over the last five months, milk per cow in the U.S. decreased from the prior year.  This decrease is spread through most all the states.

This is clearly a bad news trend as it does not help increase components per cow and does not build producer revenue.

Chart VII - Monthly Milk per Cow from 2018 to 2023

In a sense, there is more good news than bad news going into 2024.  The long-term trend of fewer farms will likely accelerate in 2024 as economics of size continue to be a key factor for survival.  The prior post covering the new Walmart fluid milk plant will also contribute to this decline in smaller farms.

What's the key to survival in 2024?  Components - Component - ComponentsProducers get paid primarily for their components.  The prices of components, published by the Agricultural Marketing Services (AMS), are really indexes based on standardized levels of components as they were in the year 2000 when the current payment system was established.  Over 24 years, there have been some significant changes in productivity.  See this recent  popular post on 24 years of changes.

• Fluid milk was the main usage of milk in 2000.  It is now cheese.
• The AMS payment program was developed to make sure Class I milk was the highest paid.  Now, with every year Class I fluid milk consumption decreases and cheese consumption increases.
• In 2000, most milk came from small farms.  Small farms are disappearing at an increasing rate.  As an example, Michigan lost over 400 primarily small farms in 2023.

Many articles have been published about 2023 being a tough year for milk producers.  This post will review the trends from 2023 and how they might influence 2024 pricing.

The basic prices for butterfat, milk protein, and nonfat dry milk (NDM) are covered below.  

BUTTERFAT

Over the last three years, butterfat prices have found new record highs. In October 2023 butterfat prices established a new record high of $2.71 per pound.  Prices fell a little in December, but the trend lines are still very positive (Chart I).

The butterfat pricing parameter can be checked off as good news going into 2024.

Chart I - Butterfat Price from 2017 through 2023

Butterfat levels in milk continue to reach new highs, with November at an average of 4.28% (Chart II).  The level of butterfat is not just continuing to grow but is growing at an accelerated rate.  The 4.28% is an average for all the Federal Orders.  The highest levels remain in the Pacific Northwest with a November near record average of 4.58% butterfat.

That is the second parameter to check off as good news going into 2024.

Chart II - Butterfat Levels from 2017 through 2023

PROTEIN

The price of milk protein has been a volatile ride over the last seven years.  During the COVID period prices reached an unbelievable $5.62 per pound in July 2020.  Well, those days are long gone with milk protein prices reaching a near record low of $1.04 per pound in October 2023.   The only time it was slightly lower was in November 2000.  The trend lines look horrible, but will hopefully improve in 2024.  

Regardless, this parameter has to be put in the bad news category going into 2024.

Chart III - Protein price from 2017 to 2023

But there is good news in terms of producers keeping the momentum of protein component levels high and increasing.  The average November Federal Order level of 3.38% protein is a record.  The Pacific Northwest continues to dominate with 3.57% protein.  The trend line is showing accelerating protein levels.

The record protein levels, and the current trends puts this parameter in the good news category.  That makes three out of four in the "good news" category so far.

Chart IV - Protein Levels from 2017 to 2023

NDM

NDM has come to be important in producer milk pricing starring in 2019 and is now used in pricing of skim milk in Classes I, II, and IV.  NDM is an export item with most exports going to Mexico.  Pricing must be competitive with skimmed milk powder in the international markets.  The supply and demand factors are cloudy for this product because it is not produced based on demand, but instead must be sold as a byproduct of butter production.

The current prices have been stable for the last five months with no reason to expect any changes.  Going into 2024 there is no reason to expect any good or bad news.

Chart VI - NDM price from 2017 to 2023

One of the major parameters for success covered in the November post is the 24 year increase in milk per cow.  With more milk, comes more components and revenue.  

Unfortunately, the 24-year long-term trend decreased in 2023. Over the last five months, milk per cow in the U.S. decreased from the prior year.  This decrease is spread through most all the states.

This is clearly a bad news trend as it does not help increase components per cow and does not build producer revenue.

Chart VII - Monthly Milk per Cow from 2018 to 2023

In a sense, there is more good news than bad news going into 2024.  The long-term trend of fewer farms will likely accelerate in 2024 as economics of size continue to be a key factor for survival.  The prior post covering the new Walmart fluid milk plant will also contribute to this decline in smaller farms.

What's the key to survival in 2024?  Components - Component - Components

Producers get paid primarily for their components.  The prices of components, published by the Agricultural Marketing Services (AMS), are really indexes based on standardized levels of components as they were in the year 2000 when the current payment system was established.  Over 24 years, there have been some significant changes in productivity.  See this recent  popular post on 24 years of changes.

• Fluid milk was the main usage of milk in 2000.  It is now cheese.
• The AMS payment program was developed to make sure Class I milk was the highest paid.  Now, with every year Class I fluid milk consumption decreases and cheese consumption increases.
• In 2000, most milk came from small farms.  Small farms are disappearing at an increasing rate.  As an example, Michigan lost over 400 primarily small farms in 2023.

Many articles have been published about 2023 being a tough year for milk producers.  This post will review the trends from 2023 and how they might influence 2024 pricing.

The basic prices for butterfat, milk protein, and nonfat dry milk (NDM) are covered below.  

BUTTERFAT

Over the last three years, butterfat prices have found new record highs. In October 2023 butterfat prices established a new record high of $2.71 per pound.  Prices fell a little in December, but the trend lines are still very positive (Chart I).

The butterfat pricing parameter can be checked off as good news going into 2024.

Chart I - Butterfat Price from 2017 through 2023

Butterfat levels in milk continue to reach new highs, with November at an average of 4.28% (Chart II).  The level of butterfat is not just continuing to grow but is growing at an accelerated rate.  The 4.28% is an average for all the Federal Orders.  The highest levels remain in the Pacific Northwest with a November near record average of 4.58% butterfat.

That is the second parameter to check off as good news going into 2024.

Chart II - Butterfat Levels from 2017 through 2023

PROTEIN

The price of milk protein has been a volatile ride over the last seven years.  During the COVID period prices reached an unbelievable $5.62 per pound in July 2020.  Well, those days are long gone with milk protein prices reaching a near record low of $1.04 per pound in October 2023.   The only time it was slightly lower was in November 2000.  The trend lines look horrible, but will hopefully improve in 2024.  

Regardless, this parameter has to be put in the bad news category going into 2024.

Chart III - Protein price from 2017 to 2023

But there is good news in terms of producers keeping the momentum of protein component levels high and increasing.  The average November Federal Order level of 3.38% protein is a record.  The Pacific Northwest continues to dominate with 3.57% protein.  The trend line is showing accelerating protein levels.

The record protein levels, and the current trends puts this parameter in the good news category.  That makes three out of four in the "good news" category so far.

Chart IV - Protein Levels from 2017 to 2023

NDM

NDM has come to be important in producer milk pricing starring in 2019 and is now used in pricing of skim milk in Classes I, II, and IV.  NDM is an export item with most exports going to Mexico.  Pricing must be competitive with skimmed milk powder in the international markets.  The supply and demand factors are cloudy for this product because it is not produced based on demand, but instead must be sold as a byproduct of butter production.

The current prices have been stable for the last five months with no reason to expect any changes.  Going into 2024 there is no reason to expect any good or bad news.

Chart VI - NDM price from 2017 to 2023

One of the major parameters for success covered in the November post is the 24 year increase in milk per cow.  With more milk, comes more components and revenue.  

Unfortunately, the 24-year long-term trend decreased in 2023. Over the last five months, milk per cow in the U.S. decreased from the prior year.  This decrease is spread through most all the states.

This is clearly a bad news trend as it does not help increase components per cow and does not build producer revenue.

Chart VII - Monthly Milk per Cow from 2018 to 2023

In a sense, there is more good news than bad news going into 2024.  The long-term trend of fewer farms will likely accelerate in 2024 as economics of size continue to be a key factor for survival.  The prior post covering the new Walmart fluid milk plant will also contribute to this decline in smaller farms.

What's the key to survival in 2024?  Components - Component - Components

Producers get paid primarily for their components.  The prices of components, published by the Agricultural Marketing Services (AMS), are really indexes based on standardized levels of components as they were in the year 2000 when the current payment system was established.  Over 24 years, there have been some significant changes in productivity.  See this recent  popular post on 24 years of changes.

• Fluid milk was the main usage of milk in 2000.  It is now cheese.
• The AMS payment program was developed to make sure Class I milk was the highest paid.  Now, with every year Class I fluid milk consumption decreases and cheese consumption increases.
• In 2000, most milk came from small farms.  Small farms are disappearing at an increasing rate.  As an example, Michigan lost over 400 primarily small farms in 2023.

Many articles have been published about 2023 being a tough year for milk producers.  This post will review the trends from 2023 and how they might influence 2024 pricing.

The basic prices for butterfat, milk protein, and nonfat dry milk (NDM) are covered below.  

BUTTERFAT

Over the last three years, butterfat prices have found new record highs. In October 2023 butterfat prices established a new record high of $2.71 per pound.  Prices fell a little in December, but the trend lines are still very positive (Chart I).

The butterfat pricing parameter can be checked off as good news going into 2024.

Chart I - Butterfat Price from 2017 through 2023

Butterfat levels in milk continue to reach new highs, with November at an average of 4.28% (Chart II).  The level of butterfat is not just continuing to grow but is growing at an accelerated rate.  The 4.28% is an average for all the Federal Orders.  The highest levels remain in the Pacific Northwest with a November near record average of 4.58% butterfat.

That is the second parameter to check off as good news going into 2024.

Chart II - Butterfat Levels from 2017 through 2023

PROTEIN

The price of milk protein has been a volatile ride over the last seven years.  During the COVID period prices reached an unbelievable $5.62 per pound in July 2020.  Well, those days are long gone with milk protein prices reaching a near record low of $1.04 per pound in October 2023.   The only time it was slightly lower was in November 2000.  The trend lines look horrible but will hopefully improve in 2024.  

Regardless, this parameter has to be put in the bad news category going into 2024.

Chart III - Protein price from 2017 to 2023

But there is good news in terms of producers keeping the momentum of protein component levels high and increasing.  The average November Federal Order level of 3.38% protein is a record.  The Pacific Northwest continues to dominate with 3.57% protein.  The trend line is showing accelerating protein levels.

The record protein levels, and the current trends puts this parameter in the good news category.  That makes three out of four in the "good news" category so far.

Chart IV - Protein Levels from 2017 to 2023

NDM

NDM has come to be important in producer milk pricing starring in 2019 and is now used in pricing of skim milk in Classes I, II, and IV.  NDM is an export item with most exports going to Mexico.  Pricing must be competitive with skimmed milk powder in the international markets.  The supply and demand factors are cloudy for this product because it is not produced based on demand, but instead must be sold as a byproduct of butter production.

The current prices have been stable for the last five months with no reason to expect any changes.  Going into 2024 there is no reason to expect any good or bad news.

Chart VI - NDM price from 2017 to 2023

One of the major parameters for success covered in the November post is the 24 year increase in milk per cow.  With more milk, comes more components and revenue.  

Unfortunately, the 24-year long-term trend decreased in 2023. Over the last five months, milk per cow in the U.S. decreased from the prior year.  This decrease is spread through most all the states.

This is clearly a bad news trend as it does not help increase components per cow and does not build producer revenue.

Chart VII - Monthly Milk per Cow from 2018 to 2023

In a sense, there is more good news than bad news going into 2024.  The long-term trend of fewer farms will likely accelerate in 2024 as economics of size continue to be a key factor for survival.  The prior post covering the new Walmart fluid milk plant will also contribute to this decline in smaller farms.

What's the key to survival in 2024?  Components - Component - Components

Walmart's new Georgia Milk Plant Will Change Dairy in the Southeast.

Walmart built a fluid milk processing plant in Fort Wayne, Indiana in 2018 to produce their "Great Value" fluid milk for the Walmart stores and "Member's Mark" fluid milk for Sam's Club.  The new plant provided significant capacity and low-cost production.  The raw milk is delivered to the plant from nearby large producers.  The finished product is delivered by Walmart's own fleet of trucks.  It also brought bankruptcy to two milk processors that depended on the volume of Walmart's "Great Value" and "Member's Mark" private labels.

Construction of another new fluid milk plant was recently announced.  It will be built in the south of Georgia, roughly 15 miles from the Florida border.   It will service the southeast Walmart and Sam's Club facilities.

The finished "Great Value" and "Member's Mark" milk will be primarily delivered in Florida, Georgia, Alabama, and South Carolina.  The Southeast and Florida Federal Orders are more than 80% fluid milk, so this new plant will have a major impact on milk producers in Florida and Georgia.

Why did Walmart choose this area?  There is a large population base in the area, and the southeast dairy milk processing is largely fluid milk. Florida is a difficult market to service due to its long distance from top to bottom with major cities in the far south.  Population data for the four southeast states is shown in Table I.  The four states in the southeast make up 15% of the U.S. population.  Combined, the yearly population growth rate in these four states is 1.3% compared to the entire U.S. growth rate of just .5%.

Per capita consumption of fluid milk is decreasing by about 2% annually.  The population increase in the southeast states will largely off set the decrease in per capita consumption, keeping the total demand in this area nearly constant.

Table I - Population Growth in the Southeast

Walmart's profile shows that they like a limited number of suppliers that are close to their plant, lowering transportation costs to get the raw milk to the plant.  Because the border to Florida is so close, some producers may be located in Florida, but because the milk is shipped (marketed) in Georgia, it would be included included in the Southeast Federal Order volumes, not the Florida Federal Order.

Currently there is limited fluid milk production in this area which the new plant will cure, but it will still result in the closing of existing processing plants.  That will lower the already declining milk production in the Florida Federal Order.

Chart I below shows the milk production in Georgia and Florida.  Florida has been declining while Georgia has been increasing.  With the new plant, this trend will accelerate.  

Chart I - Milk production in Georgia and Florida

Additional increases in productivity will result from an increase in milk per cow.  Florida herds have the lowest milk productivity of any major milk producing state.  The herds that will surround the new Walmart plant will be large.

Chart II - Milk per Cow

Where might the next Walmart fluid milk processing plant go?  Table II below lists the population of the four largest states.  Another new fluid milk plant could go to or near to these states.

California certainly has the population, but their growth rate is negative, and the state is primarily a cheese producing state.  

Texas is the second largest state in the U.S. and has a population growth rate of 1.6%, but they are also primarily a cheese producing state.

New York is losing population but does have a strong fluid milk business.

Table II - Population in the Four Largest States

Walmart is the largest grocery provider in the U.S.  When they make a supply change, it changes everything!