Shifting Trends in U.S. Dairy Industry Highlight the Growing Importance of Milk Components

USA 02.10.2024

Source: DairyNews.today

The U.S. dairy industry has traditionally relied on monthly milk production reports from the USDA to monitor the availability of milk supplies and project dairy product output. Historically, decreases in farmgate milk production indicated reduced supplies of both fluid milk and key milk components, like butterfat and protein, which are essential for producing dairy products such as cheese, butter, and yogurt. A decline in milk supplies often signaled the potential slowdown of dairy processor expansion plans.

Shifting Trends in U.S. Dairy Industry Highlight the Growing Importance of Milk Components

However, the dynamics of U.S. milk production are evolving. While the total volume of milk production has declined for 14 consecutive months through September 2024, the production of butterfat and protein—key components in many dairy products—has increased in 12 of those months. This shift underscores a significant transformation in the industry, where milk composition now plays a more critical role than overall milk volume.

A report from CoBank’s Knowledge Exchange describes this "decoupling" of fluid milk production from milk component production as a paradigm shift driven by increased consumer demand for manufactured dairy products. More than 80% of U.S. milk is used for producing solid dairy products that depend heavily on milk components, while less than 20% is used in fluid beverages.

To adapt to these changes, the report suggests that the USDA’s milk production reports should be expanded to include data on protein and butterfat levels, providing a more comprehensive view of the industry. Corey Geiger, lead dairy economist at CoBank, noted, “A more robust report would be informative to producers, processors, and retailers for better planning and risk management.”

The shift in focus from milk volume to milk solids is reshaping the dairy market. Cheese production, for instance, has benefitted from higher butterfat and protein yields in milk, with each 100 pounds of milk yielding 11.2 pounds of cheese in 2023, compared to 10.1 pounds in 2010.

This trend extends beyond the U.S. domestic market, as manufactured dairy products are driving export growth, further emphasizing the demand for milk components. With over $7 billion invested in new dairy processing capacity, both at home and abroad, the industry is poised for continued growth in response to these shifting demands.

The Milk Component Pricing provisions have incentivized dairy producers to focus on increasing protein and butterfat content in their milk, driven by soaring consumer demand for high-quality dairy products like cheese and yogurt.

While updating the USDA's monthly milk reports to include milk component data may pose challenges, Geiger emphasizes the long-term benefits for the industry, given the permanent shift towards milk solids in consumer preferences.