Will it be bottled milk? That’s a class 1 price. Will it be yogurt? That’s a class 2 price. Will it be cheddar cheese? That’s a class 3 price. Will it be butter or milk powder? That’s a class 4. Traditionally, class 1 will be the highest price.
Do you know where your milk comes from?Photo: Sue Oglocki/AP Photo
There are 11 FMMOs in the country. FMMOs in Florida, the Southeast and Appalachia focus on Class 1, or bottled, milk. Others, such as those in the upper Midwest and Pacific Northwest, focus more on processed products like cheese and butter.
Over the past few decades, farmers have generally received the lowest prices. Milk quality, production, transportation, refrigeration, and processing have all improved, resulting in more milk, a longer shelf life, and easier access to the product across the U.S. The increased supply has reduced competition among processing plants, lowering overall prices.
These productivity gains have come with increased production costs, including cattle feed, farm labor, veterinary care, fuel, and equipment costs.
Researchers from the University of Tennessee compared the prices paid for milk across regions in 2022, as well as the two main costs of production: feed and labor. Their findings shed light on why farms are struggling.
From 2005 to 2020, milk sales revenues 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.
On average, a cow producing 24,000 pounds of milk will generate about $4,457 in revenue. But it costs $6,192 to produce that milk, resulting in a loss for the dairy farmer.
More efficient farms can reduce production costs by improving cow health, fertility, and feed-to-milk conversion. Larger farms and farmer groups (cooperatives such as the American Dairy Farmers Association) can also take advantage of futures contracts for grain and future milk prices. Investments in precision technology, such as robotic milking systems, rotary parlours, and wearable health and reproductive technology, can help reduce labor costs across the farm.
Regardless of size, surviving in the dairy industry requires passion, dedication and careful business management.
Some regions have experienced bigger losses than others, but this is mostly to do with how farmers are paid – and therefore the grade of their milk – and the higher costs of production in those regions. There are several insurance and hedging programs available to help farmers offset higher production costs or unexpected price drops. Data shows that these act as a safety net if farmers take advantage of them, but they don’t solve the underlying problem of costs exceeding revenues.
Passing the baton to future farmers
Why do some dairy farmers still continue to farm dairy despite low milk prices and high production costs?
For many farmers, the answer is that dairy farming is a family business and part of their traditions: 97 percent of dairy farms in the United States are family-owned.
