A paradigm shift in measuring dairy demand

How milk components are driving dairy demand

Corey Geiger

USDA Monthly milk production data has been the bellwether when it comes to measuring milk supplies. However, a consumer shift away from fluid milk consumption towards manufactured dairy products has brought with it an increased demand for production that relies on milk components.

Corey Geiger, lead dairy economist with CoBank, provided a breakdown of his latest study that suggests the dairy industry would benefit from a more comprehensive monthly report from the USDA that includes milk, protein and butterfat production levels.

CG: Our basic question is to ask if dairy production is stagnant or is it growing. If you look at the past 14 months, milk production has been down compared to the same month a year ago. So, by that metric, you'd say dairy's not growing. But at the same time, milk components, largely butterfat and protein, have been up 12 of those 14 months. That is what is important today, especially when you consider that over 80% of the milk in the United States goes to manufactured dairy products like cheese, butter, ice cream, yogurt, and sour cream. That is what the dairy processors are demanding. Consumers are eating their dairy today instead of drinking it.

CG: In our study, we point out that until 2010, what was in milk was constant. Butterfat levels were the same for more than 60 years, and protein levels were constant. But if you look at the data from 2011 to 2023, milk production is up 16 percent while protein is up 22 percent, and butterfat is up 29 percent. These two measurements are growing significantly compared to milk volume off the farm.

CG: For dairy farmers, they're getting paid for components, largely butterfat and protein. More than 80 percent of the processing plants want components for the dairy products they produce. The industry is really changing, and it will continue to change. This story is unfolding.

CG: There are so many pieces that have come together, but the last time we had a federal marketing order reform, we more fully implemented multiple component pricing and that incentivized producers. Today, over 90% of milk from dairy farms is priced for its components.

CG: The loss of fluid milk sales makes headlines, but the industry continues to grow because consumers are eating more dairy products. There is a collective $7 billion investment in new dairy plants that will be coming online through 2026, and there’s going to be 1 billion pounds of new cheese production coming online in the next three years. Most of that is American-style cheese. These cheeses want butterfat and protein, so these plants will want milk with these components.

CG: In a word, genomics. Next to humans, the dairy cow is the most-studied domesticated animal on the plant. One out of four heifer calves are being tested at birth to determine their genetic potential. And with bulls being tested we can shift component levels even faster than we could have dreamed a generation ago. Better nutrition is driving advancements on the farm as well. But with the incentive to produce more butterfat and protein in the milk, producers are making decisions based on those two factors rather than total fluid milk production. Producers are not getting paid for the water, they are getting paid for the components.

CG: The rule of thumb for decades was that it took 100 pounds of milk to make 10 pounds of cheese. That’s not true anymore. With higher component levels, driven by better component output from the cow, that same 100 pounds of milk makes 11 pounds of cheese because it has more butterfat and more protein. We’re getting more product from the same amount of milk.

CG: Milk production reports from the USDA have been the standard for 100 years. But because milk composition is changing and processors are demanding higher butterfat and protein component levels, the milk production report in its current form is incomplete and does not give us a true measurement whether milk production is growing or declining. A more robust report including milk components as well as fluid milk production data would be more informative to producers, processors and retailers from a planning and risk management standpoint.

CG: Changing the report would be difficult because of how the data is currently tracked. But because this consumer trend continues to point to dairy products, it would be invaluable to the industry. Long-term, the dairy industry would benefit from an updated system that collects more component data and reports that data in a timely fashion. That’s important to an industry seeing consumers demand more milk solids found in manufactured dairy products while drinking less fluid milk.