By Madeline Schultz, content specialist, AgMRC, Iowa State University, schultz@iastate.edu. 

Profile revised May 2011 by Diane Huntrods, AgMRC, Iowa State University.

 
Overview
The United States produced 192.8 billion pounds of milk in 2010, an increase of 1.8 percent from 2009. The total value of milk production was $31.4 billion, nearly 30 percent higher than the previous year. Average production per cow was 21,442 pounds. The average number of milk cows on farms during the past year was 9.1 million head, down 86,000 head from 2009 (NASS 2011).

Milk production has shifted within the United States. During the 1990s, growth occurred in the Pacific Northwest, mountain states and western regions of California. During the same period, there was a decline in milk production in the upper Midwest. California surpassed Wisconsin in 1993 as the number one dairy-producing state. California leads the United States in fluid milk, butter, ice cream and nonfat dry milk production. Wisconsin is the number one producer of cheese.

Production
The U.S. government has provided support to dairy producers through a price support program, federal and state milk marketing orders, and direct government payments. 

The Milk Price Support Program is part of the Farm Security and Rural Investment Act of 2002 (2002 Farm Bill). The support price remains at $9.90 per 100 pounds of milk, down from $13 per cwt. in the mid 1980s. The Commodity Credit Corporation has the authority to adjust relative purchase prices of butter, cheddar cheese and nonfat dry milk twice per calendar year.

Federal milk marketing orders, in use since the 1930s to stabilize the marketing relationship between farmers and processors, are based on pooling regions in the United States and pricing milk according to how it is used in a classified pricing plan. The marketing orders were revised in 2000. Class I milk is used for bottling and commands the highest classified use price; Class II milk is for soft manufactured products. Cheese is produced using Class III milk. Class IV milk is used to manufacture butter and nonfat dry milk.

The price paid to producers is also adjusted based on other factors, such as where milk from the farm is delivered. Component levels, or the percentage of butterfat, protein and other solids tested for in the milk, are factored in for Class III and Class IV milk prices.

The National Dairy Market Loss Payment Program, also a part of the 2002 Farm Bill, replaced direct market loss payments, which were made during periods of low milk prices. The program deficiency payments are limited to 2.4 million pounds of milk per farm operation per fiscal year.

The Milk Income Loss Contract (MILC) Program financially compensates dairy producers when the Boston Class I milk price class falls below $16.94 per hundredweight. Payment rates are determined by multiplying the difference between $16.94 and the Boston Class I price for that month by 45 percent. Payments are issued up to a maximum of 2.4 million pounds of milk produced and marketed by an eligible dairy producer per year. More information on the MILC program is available from local FSA offices or at: http://www.fsa.usda.gov/.
 
The dairy industry began a voluntary, producer-funded effort in 2003 called Cooperatives Working Together (CWT) to strengthen and stabilize farm milk prices. The program, administered by the National Milk Producers Federation, was launched following a drop in farm-level milk prices that reached 25-year lows. The three-level supply reduction program included a herd retirement program, milk production reduction and dairy product export assistance. It is funded through a 5 cent per hundredweight assessment on participating producers’ milk output.

To bring milk supply and demand into better balance, CWT conducted three rounds of herd retirement in 2009. The three rounds removed nearly a half million milk cows from production and 4.8 billion pounds of milk from the U.S. market.This program may have hastened the process of culling poorer producing cows from the dairy herd, thus helping to raise the average milk production per cow. Most of the cows removed were in the western regions of the country.

Demand
According to the National Milk Producers Federation, fluid milk sales make up 30 percent of total U.S. milk consumption. About half of all milk consumed in the United States is in the form of cheese.

Total per person milk consumption in 2008 was 179 pounds (ERS). Per capita fluid milk consumption has declined slowly due to competition from other beverages and because of a smaller percentage of children in the United States.

Milk is regarded as a flow commodity because it is produced every day and must go to market at least every other day. Day-to-day milk supply does not coincide with milk demand. Demand for milk for bottling is nearly zero on Sundays and limited on Saturdays and Wednesdays because most plants close those days due to buyer demand schedules.

According to an Economic Research Service study on the milk pricing system, establishing a balance between milk’s supply and demand would require a balance among the following factors:

• For producer prices to remain high enough to maintain production yet not encourage surplus milk production;
• Willing and able consumers to pay for milk and dairy products; and
• For producers, handlers and the public to be interested in the orderly flow of milk and dairy products from producers to consumers.

Processing
The United States has 380 commercial fluid milk bottling plants and 1,273 dairy product manufacturing plants. The Central region of the country has 611 plants, followed by the Atlantic region with 447 plants and the West with 215 (NASS 2011). Due to the perishable nature of milk, it must be marketed promptly as fluid milk or processed into a storable manufactured dairy product.

According to the U.S. Dairy Export Council, more than 80 plants in the United States manufacture milk powder, accounting for 10 percent of the world’s milk powder production, or more than 700,000 metric tons. The U.S. dairy industry is positioned as a primary worldwide dairy ingredient supplier. 
 
Value-Added Dairy Opportunities
Producers are tailoring their operations to meet consumer demands for dairy products. Some are adjusting production systems to qualify for organic labeling. Others are taking proactive approaches at processing, marketing their own products directly to customers.
 
Organic
As of December 31, 2008, nearly 202,000 U.S. dairy cows were certified organic. During 2008, organic dairy cows produced 2.8 billion pounds of organic milk that was valued at $750.2 million. California was the leading producer of organic milk, marketing 501.8 million pounds valued at $133.5 million, followed by Wisconsin, Texas, Oregon and New York.

USDA standards for organic food were implemented in October 2002. According to the USDA, certified organic means “agricultural products have been grown and processed according to specific standards of various state and private certification organizations.” Agents accredited by USDA review farm applications and qualified inspectors conduct annual on-site inspections. Farm records track all management practices and materials used in organic production. Processing facilities for organic foods must also be certified by USDA-accredited agents. USDA maintains a list of accredited certifying agents on the National Organic Program Web site (http://www.ams.usda.gov/nop/indexIE.htm). It is currently compiling a list of certified organic processors.

Organic milk accounts for less than one percent of the U.S. milk market. Organic dairy products are being marketed through mainstream supermarket channels and natural foods stores. Two-thirds of the organic milk and cream and half of the organic cheese and yogurt are sold through conventional supermarkets. 

Please see Organic Dairy for additional information.

Fluid Milk
The United States is the largest producer of cow's milk in the world. In 2010, the country supplied 193 billion pounds of milk, a 1.8 percent increase from the previous year. California continues to lead the country in milk production, followed by Wisconsin. New York, Idaho and Pennsylvania round out the top five milk-producing states.

About 12.8 percent of the U.S. milk production in 2010 was exported. The country shipped $60.2 million worth of fluid milk and cream overseas that year, up 36 percent from 2009. The two largest markets were Mexico, which imported $27.6 million of milk, and Canada, which imported $24.6 million.

Please see Fluid Milk for additional information.
 
Cheese
More than 25 percent of the world’s cheese is manufactured in the United States. Total U.S. cheese production, excluding cottage cheese, was 10.4 billion pounds in 2010, a 3.6 percent increase from the previous year. Wisconsin was the leading state, producing 2.6 billion pounds, or 25 percent of total cheese production that year, followed by California, which produced 2.2 billion pounds, or 21 percent of total cheese production.

U.S. per person cheese consumption, excluding cottage cheese, was 32.4 pounds in 2008 (ERS). Americans ate 14 pounds per year of Italian-type cheese, which includes Mozzarella and Parmesan, compared to 13 pounds per year of American-type cheese, which includes Cheddar and Colby. Overall cheese consumption continues to increase due to its versatility and adaptability to recipes, more available varieties and the increased interest in ethnic cooking.

Increased cheese consumption can be attributed, in part, to growth in specialty cheese. Specialty cheese is a value-added product of high quality and limited quantity. Some of the unique qualities of specialty cheese include having an exotic origin, distinctive processing, extraordinary packaging, or unusual use and channel of sale. To be regarded as a specialty cheese, nationwide annual production cannot be more than 40 million pounds. Americans ate 5.4 pounds of specialty cheese per person in 2008. 

Please see Cheese for additional information.
 
Exports
The United States exports such dairy products as cheese, whey, lactose protein, ice cream, infant formula, fluid milk and cream, and milk powders. During 2010, $3.7 billion worth of dairy products were shipped to other countries, up a resounding 63 percent from 2009.

The primary markets that year were Mexico and Canada. Dairy exports to Mexico totaled $822.8 million, up 29 percent from 2009, and dairy exports to Canada totaled $436.0 million, up 16 percent. China and Japan were other significant markets for U.S. dairy products; both countries experienced large increases in the value of their U.S. dairy imports.  

According to the U.S. Dairy Export Council, strong world demand positions the United States as being the world's leading supplier of skim milk powder, whey and lactose.  

Please see International Dairy Markets for additional information.

Imports
The United States is the largest cheese-importing country in the world. Other imported dairy items are casein, a milk protein used as a food ingredient; milk protein concentrates; butterfat; dairy blends; whey and chocolate preparations.

The United States imported $2.5 billion worth of dairy products during 2010, up slightly from 2009. Although New Zealand remained the leading supplier of dairy products to the United States, by value, the value of those imports declined 20 percent and the volume plummeted 73 percent. On the other hand, dairy product imports increased, by value and by volume, from both Canada and Italy, the second and third largest suppliers, respectively, of dairy products to the United States.  

Importation of live animals is now possible. In recent years, importation of replacement heifers from Canada was banned due to the bovine spongiform encephalopathy (BSE)-related restrictions. The USDA reports that imports of female dairy breeding stock from Canada have totaled 1 to 2 percent of the U.S. heifer herd.
 
Competitiveness
Fluid milk competes with other beverages for sales. While skim milk consumption has increased over time and whole milk consumption has decreased, overall milk intake by U.S. consumers has dropped in the last 20 years. 

Since 1990, carbonated soft drink consumption by men and women has surpassed milk intake. In 2003, bottled water surpassed milk to become the second most consumed commercial beverage. Consumption of fruit and sports drinks has also increased over time. Nondairy milk products made with soy and rice are competing for space in the dairy case and are advertised as having comparable dairy attributes like calcium. Fluid milk is also being outspent on advertising by competing beverages.

Few price incentives currently exist for expanded U.S. dairy exports. Internal prices for U.S. bulk dairy products are substantially higher than world prices. Except for a few products, namely ice cream, specialty cheeses, and dried whey, dairy products from the United States are not competitively priced in world markets.

The United States faces competition from foreign firms that have acquired U.S. dairy and marketing operations. Foreign firms are also taking advantage of shipping in the food ingredient casein to the United States, which is duty free and without quota limits.

The United States faces international competition for dairy export sales. About two-thirds of world dairy exports originate from the European Union (31 percent), New Zealand (22 percent) and Australia (12 percent). Other key dairy exports include Poland, Argentina, Canada, Switzerland and Uruguay.
 
Trends
The outlook for U.S. milk production in 2011 is for continued growth but at a slower pace. Although milk prices are expected to remain similar to 2010, higher feed prices, particularly for corn, are expected to result in a lower milk feed price, which will likely slow any expansion in cow inventories.

The U.S. dairy herd will likely increase slightly in 2011 to 9.17 million head, up from 9.12 million last year. Milk per cow is also forecast to rise this year, but by only 1 percent compared with a 2.8 percent year-over-year increase last year. The small increases in herd size and milk per cow will increase production to 195.9 billion pounds of milk in 2011. Major dairy product prices are expected to go higher in 2011 compared with 2010.
 

Sources
Beverage Marketing Corp

California Dairy Foods Research Center

Dairy, Economic Research Service (ERS), USDA.

Dairy Products Annual Summary, National Agricultural Statistics Service (NASS), 2011.

International Dairy Foods Association

Livestock, Dairy & Poultry Outlook, ERS, USDA.

Milk Income Loss Contract Program, Farm Service Agency.

Milk Production, Disposition, and Income Annual Summary, NASS, USDA, 2011. 

National Milk Producers Federation

Organic Production, ERS, USDA.

Real California Cheese, California Milk Advisory Board.

U.S. Dairy Export Council

U.S. Milk Powders: Abundant, versatile, year-round supply, U.S. Dairy Export Council.

Wisconsin Agricultural Statistics, Wisconsin Agricultural Statistics Service.

Wisconsin Specialty Cheese Institute


Profile created March 2003 and revised May 2011.