Will it be bottled milk? That is the price of class 1. yogurt? Class 2 price. Cheddar cheese? Class 3 price. Butter or powdered milk? Class 4. Traditionally, class 1 receives the highest price.
Do you know where your milk comes from? Photo: Sue Ogroki/AP Photo
There are 11 FMMOs that divide the country. FMMOs in Florida, the Southeast, and Appalachia are focused on Class 1, or bottled, milk. Other FMMOs, such as the Upper Midwest and Pacific Northwest, have more industrial products such as cheese and butter.
For the past few decades, farmers have generally received the lowest prices. Improvements in milk quality, milk production, transportation, refrigeration, and processing have all increased milk volume, extended shelf life, and made the product more available throughout the United States. The increased supply reduced competition among processing plants and lowered overall prices.
These production improvements have also increased production costs, including costs for cattle feed, farm labor, veterinary care, fuel, and equipment.
In 2022, researchers at the University of Tennessee compared the receiving price of milk in each region with key production costs: feed and labor. 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, the total cost to produce 100 pounds of milk ranged from $11.27 to $43.88, with an average cost of $25.80.
This means, on average, a cow producing 24,000 pounds of milk brought in about $4,457 in income. But producing that milk costs $6,192, meaning a loss for the dairy farmer.
More efficient farms can reduce production costs by improving cow health, fertility, and feed-to-milk conversion rates. Large farms and farmer groups (cooperatives such as Dairy Farmers of America) may also be able to take advantage of forward contracts for grain and future milk prices. Investments in precision technologies such as robotic milking systems, rotary parlors, and wearable health and reproductive technology can help reduce labor costs across farms.
Regardless of size, survival in the dairy industry requires passion, dedication, and careful business management.
Some regions have experienced higher losses than others, but this is primarily related to the way farmers are paid, i.e. the class of milk and the rising cost of production in the region. There are several insurance and hedging programs that can help farmers offset high production costs and unexpected price declines. Data shows that they can act as a safety net if farmers use them, but they do not solve the fundamental problem of costs exceeding income.
Passing the torch to future farmers
Why do some dairy farms still survive despite low milk prices and high production costs?
For many farmers, the answer is because it’s a family business and part of their tradition. 97% of U.S. dairy farms are family-owned.
