Producer Milk Prices are down. What States are doing best?

Producer Milk Prices are down.  Much of this comes from the Agricultural Marketing Services (AMS) price changes for butterfat and milk protein.  This post will cover the financial impact of the changes for the U.S. dairy industry and will drill down to the impact in the major milk producing states.

Chart I below quantifies the changes in the price of the major commodities used to price butterfat and milk protein.  The price of butter has consistently increased in the last five years and the price of cheese has gone down. 

Chart I - AMS Prices of Cheese and Butter

Collectively, Charts II through IV follow the revenue per cow for butterfat and milk protein over the last five years in the U.S.  They are calculated by combining component levels, milk per cow, and the AMS prices of butterfat and milk protein to calculate the monthly revenue per cow.  

Chart II tracks the monthly revenue of butterfat per cow.  Over the last five years, the value of butterfat dropped and then increased significantly.  The current butterfat revenue per cow reached a new record high.  In 2020, prices of butterfat declined largely influenced by the COVID "stay at home" policies.  In 2021 they recovered and then continued to increase to record highs.  In 2023, butterfat value per cow leveled off but remains near record levels.

Chart II - U.S. Producer Revenue per Cow for Butterfat

Chart III follows the revenue of milk protein per cow.  It is the inverse picture of butterfat value in Chart II.  It reached highs in 2021 and is at near record lows in 2024.  The reason for the inverse relationship is the impact of the USDA protein pricing formula covered in the prior post.  As butterfat prices increase, the value of milk protein decreases.

Chart III - U.S. Producer Revenue per  Cow for Milk Protein

Chart IV shows the combined value of butterfat and milk protein per cow.  They declined in 2023 but are still well above the January 2019 values.  The increase from the start of 2019 to the high in 2023 is a 55% increase.  The increase from the start of 2019 to February 2024 is 26%.  While the value of butterfat and milk protein has dropped in 2023, it is still well above 2019 prices.  The 2023 drop in value is 19% which has led to many articles about the drastic drop in producer milk prices.  However, the prices are in line with the long revenue trends.

The drastic price drop in 2023 will likely accelerate the long-term trends of fewer small dairy producers and increased large herds which have economic advantages of their size.

Chart IV - U.S. Combined Revenue per cow for
Butterfat and Milk Protein.

Below is the revenue per cow financial impact on three of the largest milk producing states.  All show the same general up and down revenue trends, but the amount of swings and the total revenue are significantly different.

Monthly California butterfat and protein prices per cow are now just 4% higher than the beginning of 2020.  Twelve-month moving average data for 2019 is not available, as California did not become a Federal Order until the end of 2018

Chart V - California Producer Revenue per Cow for
Butterfat and Milk Protein

Wisconsin's current revenue per cow for butterfat and protein is 27% higher in February 2024 compared to the start of 2019 (Chart VI).  The value peaked at a 55% increase in December 2022.  The current pricing is in line with long-term trends.

Chart VI - Wisconsin Producer Revenue per Cow for
Butterfat and Protein

Texas's current revenue per cow is 28% higher than the start of 2019.  It peaked with a 59% increase in January 2023.

Chart VII - Texas Producer Revenue per Cow for
Butterfat and Protein

The table below shows the February 2024 revenue per cow for three of the major dairy producing states covered in the three charts above.  They range from $388 per cow per month to $362 per cow per month, a 7% difference.  For a herd of 1000 cows for a year, that is a herd revenue difference of $312,000 per year.

Table I - Butterfat and Protein
Revenue per Cow

What makes the difference in revenue per cow?  Table II compares the parameters that influence revenue per cow of the three large states.  Texas, which had the highest revenue per cow, and was highest in two of the parameters. Wisconsin was highest in one category.  The parameters of high components and milk per cow lead to high milk revenue per cow.

Table II - Parameters that Lead to High Revenue per Cow

SUMMARY

Being a milk producer in the U.S. can be financially volatile.  Maximizing component levels and milk per cow has a strong influence on revenue.  There are multiple methods such as balancing amino acids in diets that are used to maximize the parameters shown in Table II.  Survival and financial success depends on using all the tools.

The next post to this blog will cover an analysis of maximizing revenue in areas paid on the "Advanced" system where payment for butterfat exists, but not for protein.  Can they benefit financially by increasing butterfat levels and milk per cow?