Does it become bottled milk? That’s Class 1 price. Yogurt? Class 2 price. Cheddar cheese? Class 3 price. Butter or powdered dry milk? Class 4. Traditionally, Class 1 receives the highest price.
Do you know where your milk comes from?Photograph: Sue Ogrocki/AP Photo
There are 11 FMMOs that divide up the country. The Florida, Southeast, and Appalachian FMMOs focus heavily on Class 1, or bottled, milk. The other FMMOs, such as Upper Midwest and Pacific Northwest, have more manufactured products such as cheese and butter.
For the past several decades, farmers have generally received the minimum price. Improvements in milk quality, milk production, transportation, refrigeration, and processing all led to greater quantities of milk, greater shelf life, and greater access to products across the US. Growing supply reduced competition among processing plants and reduced overall prices.
Along with these improvements in production came increased costs of production, such as cattle feed, farm labor, veterinary care, fuel, and equipment costs.
Researchers at the University of Tennessee in 2022 compared the price received for milk across regions against the primary costs of production: feed and labor. The results show why farms are struggling.
From 2005 to 2020, milk sales income per 100 pounds of milk produced ranged from $11.54 to $29.80, with an average price of $18.57. For that same period, the total costs to produce 100 pounds of milk ranged from $11.27 to $43.88, with an average cost of $25.80.
On average, that meant a single cow that produced 24,000 pounds of milk brought in about $4,457. Yet, it cost $6,192 to produce that milk, meaning a loss for the dairy farmer.
More efficient farms are able to reduce their costs of production by improving cow health, reproductive performance, and feed-to-milk conversion ratios. Larger farms or groups of farmers—cooperatives such as Dairy Farmers of America—may also be able to take advantage of forward contracting on grain and future milk prices. Investments in precision technologies such as robotic milking systems, rotary parlors, and wearable health and reproductive technologies can help reduce labor costs across farms.
Regardless of size, surviving in the dairy industry takes passion, dedication, and careful business management.
Some regions have had greater losses than others, which largely ties back to how farmers are paid, meaning the classes of milk, and the rising costs of production in their area. There are some insurance and hedging programs that can help farmers offset high costs of production or unexpected drops in price. If farmers take advantage of them, data shows they can functions as a safety net, but they don’t fix the underlying problem of costs exceeding income.
Passing the Torch to Future Farmers
Why do some dairy farmers still persist, despite low milk prices and high costs of production?
For many farmers, the answer is because it is a family business and a part of their heritage. Ninety-seven percent of US dairy farms are family owned and operated.