The U.S. dairy industry faces a paradox as falling fluid milk production contrasts with rising butterfat and protein levels, signaling a shift towards manufactured dairy products. A CoBank report emphasizes the need for updated USDA reporting to reflect these changes and guide industry planning.
The U.S. dairy industry, a vital sector with an annual sales figure of $76 billion, is witnessing a significant shift as falling milk production contrasts with the growing production of essential milk components. CoBank, a cooperative bank serving rural America and providing financial services to agribusinesses, has released a report highlighting this evolving dynamic within the industry.
Historically, monthly milk production data from the USDA has been used to gauge the availability of milk for processing and to forecast dairy product output. Traditionally, declining milk production indicated a reduction in both fluid milk and the solid milk components necessary for producing cheese, butter, and other dairy products. However, recent trends show that while U.S. milk production has been on the decline for 14 consecutive months, the key components such as butterfat and protein have been increasing, signaling a shift in the industry.
Through September 2024, the production of fluid milk has decreased, while butterfat and protein levels have risen in 12 of the last 14 months. This decoupling of fluid milk production from milk component production represents an important change in the dairy landscape, as more than 80% of U.S. milk production is processed into dairy food products that rely on these components, with less than 20% going into fluid beverages.
Corey Geiger, lead dairy economist at CoBank, noted the significance of this shift: “USDA’s Milk Production reports have been the gold standard for tracking milk available for processing since 1924. However, changes in milk composition have rendered the report incomplete for understanding production trends. A more comprehensive report including milk components would benefit producers, processors, and retailers in planning and risk management.”
The growth in manufactured dairy products such as cheese, whey, butter, yogurt, and ice cream, which depend heavily on milk components, reflects changing consumer preferences. This shift emphasizes that milk solids are increasingly important to dairy processors, overshadowing the traditional focus on fluid milk volume. For instance, in 2010, 100 pounds of milk yielded 10.1 pounds of cheese, but by 2023, that yield had improved to 11.2 pounds due to higher butterfat and protein content.
The report also highlights the increased demand for U.S. manufactured dairy products in both domestic and international markets, driving investments of over $7 billion in new dairy processing capacity. Several factors have contributed to rising protein and butterfat levels in the U.S. milk supply, including Milk Component Pricing provisions, which incentivize dairy producers to enhance their milk component levels to meet soaring consumer demand.
Despite the complexities involved in tracking this data, Geiger emphasized the need for an updated reporting system: “Long-term, the U.S. dairy industry would benefit from collecting and reporting more comprehensive component data in a timely manner. This is crucial as consumers continue to prefer manufactured dairy products over fluid milk.”
CoBank’s report underscores the importance of adapting to the evolving landscape of the U.S. dairy industry as consumer preferences shift towards more solid dairy products. For a detailed analysis, read the report titled “Why Milk Components Matter More than Milk Production” available on CoBank’s website.
