Peter Vitaliano, Ph.D, Chief Economist for the National Milk Producers Federation explains, “The liquid component of raw milk determines product yield for only a small proportion of total dairy production. Milk solids production per cow has been growing faster than milk production per cow in recent years, as average milk solids composition of milk has grown.”
He cites butter, cheddar cheese, nonfat dry milk and dry whey as the most influential drivers of milk prices due to their key role in federal milk marketing order pricing formulas. Vitaliano has analyzed decades of data on the supply and of these key products. He can point to any spike or dip on a chart and explain how historic events and the economic climate impact the trends in consumption of the key products. For each one of the four main products that influence milk prices, several factors influence supply, demand and pricing – both globally and domestically – weaving a complex web for productivity goals.
Butter consumption, for example, has been heavily influenced by affordability, global events, competition and campaigns surrounding the health implications of certain fats. “Butter has only recently recovered thanks to checkoff-funded research showing that fat is not the issue, but carbohydrates are the culprit,” Vitaliano says.
According to Vitaliano, U.S. consumers provide a healthy, steadily growing market for products produced from milk sold by U.S. dairy farmers. In summary he says, “They are increasing their overall per-capita consumption of dairy, their consumption is relatively insensitive to changing prices and economic conditions – such as recessions – and they respond positively to promotion.”
The recent increase in whole milk consumption can be tied largely to strategic promotion. Decades of misguided advice from experts, mirrored by the U.S. government with ramifications in school milk programs, had whole milk consumption declining for years. “That has been reversed in recent years,” Vitaliano says. “Dairy farmers through their checkoff programs have been instrumental in helping bring that about through research funded by checkoffs.”
Tying it all back to production, Vitaliano says growth in dairy cow productivity, along with growth in total dairy consumption, is a relatively constant factor in the dairy industry, in that it is also relatively insensitive to prices and other variable features of the current dairy situation. “Growth in dairy cow productivity and growth in total dairy consumption are closely related. When consumption growth lags, cow numbers become excessive, and milk prices are under pressure.”
Under today’s U.S. dairy supply system, relatively small changes in supply generate relatively large changes in prices. Vitaliano says this is what makes dairy promotion so effective. “If you can move the needle a little bit on consumption, it’ll have a big impact on prices.”
Vitaliano presented the seminar “Dairy Cow Productivity: More Important to the Profitability of Your Dairy Operation Than You Think” during the 2021 World Dairy Expo in Madison, WI. The session was sponsored by the National Milk Producers Federation and is available for viewing here.
