Chart I tracks the Agricultural Marketing Services (AMS) prices used for producer payment of butterfat and milk protein in the Federal Orders. It is shown here primarily to highlight the volatility of prices paid to producers. The trend lines show a steady increase in the price of butterfat and the declining price of milk protein. The volatility would make any business person uneasy of managing this business.
One important pricing is in 2024 when the price of butterfat went to a 27-year record high and the price of milk protein went to 27-year record low. The record high for butter was caused by an increase in the demand without increases in production. The decrease in the low milk protein is a result of the AMS formulas that lower the value for milk protein when the price of butterfat goes up.
When butterfat increases in price it does cause a decrease in milk protein prices, but it does not balance the combined milk protein and butterfat prices. There is still tremendous volatility in producer revenue.
Between 2001 and 2014 revenue increased for dairy producers. Since then, producer revenue has been flat to down. The amazing management of the dairy industry has kept production steady and improvements that keep costs down.
Good years and bad years have always existed in agriculture. Some years soybeans and/or corn have a good price and other years revenue is minimal. While mother nature dictates the success of the crops, dairy is more manageable. The Federal Orders control dairy component prices. Some producers have dropped out of the Federal Orders and others have taken advantage of de-pooling.
Dairy products continue to evolve to support health benefits and increase appeal of dairy products. The development of appealing products and the many changes in dairy herds have kept sales stable and with minimal inflation as covered in a recent post to this blog.
There must always be continuous changes in all dairy aspects and hopefully some of these changes will help reduce producer revenue volatility making milk production more desirable.
Be the first to comment