Marketing Milk

1. Marketing Milk Chapter 46

2. Objectives • Describe price, supply, and demand trends for milk and dairy products • Discuss markets for milk • Describe the grades of milk • Explain the pricing of milk

3. Price of Milk • Dairy farmers produce milk to sell at profit • Careful management can help reduce production costs • Milk-feed Price Ratio gives the true value of milk

4. Price of Milk (cont.) • Seasonal Trends • National milk production average is highest in May and lowest in November • Fluid milk consumption is lowest in June • Lowest prices in May and June • Highest prices in October, November, and December

5. Price of Milk (cont.) • Seasonal Trends (cont.)

6. Demand for Dairy Products • Products Made from Milk • The three major uses of milk are • Fluid product • Cheese • Butter • They contribute to 95 percent of milk sales • Also demand for frozen dairy products

7. Demand for Dairy Products (cont.) • Products Made from Milk (cont.) • Fluid milk products primarily • Whole milk (3.25 percent milkfat) • Low-fat milk (from 0.5 to 2.0 percent milkfat) • Skim milk (less than 0.5 percent milkfat) • Other fluid milk products • Coffee cream • Whipping cream

8. Demand for Dairy Products (cont.) • Products Made from Milk (cont.) • Other fluid milk products (cont.) • Coffee cream • Whipping cream • Half and half • Sour cream • About 25 percent of milk produced in the U.S. is used for fluid milk products

9. Demand for Dairy Products (cont.) • Products Made from Milk (cont.) • About 50 percent of milk produced in the U.S. is used for cheese • About 67 percent is used for American cheeses • About 25 percent for Italian cheeses • About 6 percent for Swiss cheeses • Butter production uses about 20 percent of milk produced in the U.S.

10. Demand for Dairy Products (cont.) • Products Made from Milk (cont.) • About 5 percent of milk produced in the U.S. is used for ice cream, yogurt, other dairy products • Other dairy products include • Evaporated and condensed milk • Evaporated and condensed buttermilk • Various dry milks

11. Demand for Dairy Products (cont.) • Trends in the Consumption of Dairy Products • Cheese, yogurt only milk products with increased consumption from 1970-2009 • Others products, such as fluid milk, cream, butter, ice cream, and evaporated or condensed milk, have decreased

12. Demand for Dairy Products (cont.) • Trends in the Consumption of Dairy Products (cont.) • Decreases in consumption due to competition from imitation products • Margarine • Imitation milk and cheese • Nondairy creamers • Nondairy whipped products

13. Demand for Dairy Products (cont.) • Trends in the Consumption of Dairy Products (cont.) • Research shows expected increase in use of • Fluid low-fat milk • Fresh cream • Cheese • Ice cream • Butter

14. Demand for Dairy Products (cont.) • Advertising Dairy Products • National Dairy Promotion and Research Board established for promotion of the dairy industry • Established in 1983 • Dairy Management Inc. (DMI) was organized to coordinate local and national dairy promotion programs • Established in 1995

15. Markets for Milk • More than $21 billion worth of milk is produced each year in the U.S. • About 86 percent of this is sold through farmer milk marketing cooperatives • Number of cooperatives expected to decline, while those remaining will grow in size, provide more services

16. Services Provided by Farmer Cooperatives • Cooperative provide more service than private firms. • Cooperatives provide marketwide services

17. Hauling Milk to Market • Most milk in U.S. hauled from farm to plant in bulk trucks • Fewer farms have made it necessary to haul milk farther • Larger trucks being used, fuel and labor costs have increased sharply

18. Milk Grades • In 1924, the U.S. Public Health Service developed the Standard Milk Ordinance • Helps states and local governments prevent diseases spread through milk • The ordinance has been revised and is now titled the Grade “A” Pasteurized Milk Ordinance

19. Milk Grades (cont.) • Grade A milk (fluid milk) • Must be cooled to 45° in less than 2 hours • Must meet low bacterial standards • No detectable antibiotics in milk • Grade B milk • Requirements less strict than Grade A milk • Standards address similar issues

20. Federal Milk Marketing Order Program • Program began in 1937 • Subsequent price support programs passed by Congress • Commodity Credit Corporation (CCC) supports prices through purchase of surplus butter, cheese, nonfat dry milk products

21. Federal Milk Marketing Order Program (cont.) • CCC has not removed much product in recent years • While part of the industry, it does not affect the industry as it did in the past • Federal Agriculture Improvement and Reform Act of 1996 eliminated dairy price support operations of CCC

22. Federal Milk Marketing Order Program (cont.) • In federal order markets, Grade A milk is divided into classes, based on purpose • About 95 percent is Grade A • Class I milk • Whole milk, skim milk • Buttermilk, eggnog • Flavored milk drinks

23. Federal Milk Marketing Order Program (cont.) • Class II milk • Ice cream • Yogurt • Cottage cheese • Cream • Class III milk used for most cheeses • Class IV milk used for butter, dried product

24. Dairy Imports and Exports • Imports and exports of dairy products have been at relatively low levels • Imports have been generally less than 2 percent of total U.S. production • Exports of dairy products have generally been below 1 percent of total U.S. production