The prior posts reviewed the amazing gains in producer productivity. Increases in butterfat components, increases in protein components, and increases in milk per cow. In each of these areas the increases were continuous over many years. Some of the reasons are improved genetics, more frequent milkings, better housing (barns), scientifically developed nutrition, better care like improved vaccines, cross breeding, larger herds, and many other things. A lot of work and development has gone into these changes. Certainly, producers must have increased revenue.
Well, maybe not.
The data below is based on monthly data, not 12-month averages as typically used in these blogs.
Chart I below follows the monthly revenue per cow from milk protein and butterfat and milk per cow. The current revenue per cow is near a low point
The value of butterfat per pound has varied significantly over five years (Chart II). When butterfat was in short supply, prices escalated. As the butterfat supply/demand leveled off, the value went down. Then, in mid 2025 the Agricultural Marketing Services (AMS) formulas were changed, and the butterfat price went down further.
The formula for calculating milk protein is more complex, but as butterfat goes up in price, protein prices will go down. That is clearly shown in Chart III below. As the price of butterfat goes down, (Chart II), protein prices go up (Chart III).
The implementation of the new AMS formulas has had a negative impact on the producer prices of butterfat and milk protein.
What has happened to the U.S. milk production and number of cows? With higher milk per cow, fewer cows should be required. However, three things have happened to change domestic demand for producer milk. Cheese consumption has slowed down, milk consumption is no longer declining, and butter consumption is still increasing.
The following charts show the trends in number of dairy cows and production of milk.
The number of dairy cows has increased by almost 3% in 2025 (Chart IV). The amount of producer milk shows an increase of 2% in 2025 (Chart V). The milk increase has been used to cover domestic butter demand without importing butterfat to meet the demand for fluid milk.
SUMMARY
Dairy producers have done an amazing job of improving productivity. Milk processors are building new and bigger facilities. More big companies are making milk processing more efficient. Yes, milk production and milk processing are becoming “factory” facilities. Milk processing facilities should see some cost reductions. Who sets the prices? The USDA’s Agricultural Marketing Service (AMS) sets the minimum prices for producers within Federal Milk Marketing Orders (FMMOs). The Federal Orders account for most of the milk produced and processed.
Producers must maintain advancements to stay financially stable as the AMS producer prices are lowered, and the producers seem to be very good at meeting this challenge. The days of small family farms producing milk is disappearing as they cannot be competitive. Where does the cost reduction of processing come into the calculations? The changes in AMS “make allowances” seem to always grow.
