Does this become bottled milk? This is Price class 1. Yogurt? Price class 2Cheddar? Price class 3. Butter or milk powder? Class 4Traditionally, the highest price is given to Class 1.
Do you know where your milk comes from?Photo: Sue Ogrocki/AP Photo
There are 11 FMMOs that divide the country. The Florida, Southeast, and Appalachian FMMOs focus primarily on Class 1, or bottled, milk. The remaining FMMOs, such as the Upper Midwest and Pacific Northwest, have more processed products, such as cheese and butter.
For the past few decades, farmers have typically received a minimum price. Improvements in milk quality, milk production, transportation, refrigeration, and processing have led to more milk, longer shelf life, and greater access to the product throughout the United States. The increased supply has reduced competition among processors and lowered overall prices.
Along with these improvements in production came increase in production costssuch as cattle feed, farm labor, veterinary care, fuel and equipment costs.
University of Tennessee researchers in 2022 price compared received for milk in different regions in relation to basic production costs: Feed and Work. The results show why farms are struggling.
From 2005 to 2020, milk sales revenue per 100 pounds of milk produced ranged from $11.54 to $29.80, with an average price of $18.57. During the same period, total costs to produce 100 pounds of milk ranged from $11.27 to $43.88, with an average cost of $25.80.
This meant that, on average, one cow that produced 24,000 pounds of milk brought in about $4,457 in income. However, that milk cost $6,192 to produce, which meant a loss to the dairy farmer.
More capable farms can reduce production costs by improving cow health, reproductive performance and feed to milk conversion factors. Larger farms or groups of farmers—cooperatives like Dairy Farmers of America—can also benefit from futures contracts on grain and future milk prices. Investments in precision technologies, such as robotic milking systems, rotary milking parlors, and wearable health and reproductive technologies, can assist reduce farm labor costs.
Regardless of the size of your business, surviving in the dairy industry requires passion, dedication and careful business management.
Some regions have suffered greater losses than others, which is largely due to the way farmers are paid, i.e. milk grades and rising production costs in their region. There are some insurance and security programs that can assist farmers offset high production costs or unexpected price drops. If farmers take advantage of them, the data shows they can acts as a safety netBut they do not solve the fundamental problem of costs exceeding revenues.
Passing the baton to future farmers
Why do some dairy farmers persist in producing despite low milk prices and high production costs?
For many farmers, the answer is that it is a family business and part of their heritage. Ninety-seven percent of U.S. dairy farms are family-owned and operated.