USDA has estimated summary statistics for annual production costs and returns for milk since 1980. Cost and return estimates are a primary data source reported for the United States, for Farm Resource Regions, by State, and by size category. For U.S. and Farm Resource Region estimates, go to the Commodity Costs and Returns Data. Milk State and size estimates are presented on the Milk Cost of Production site.

The history of milk cost of production estimates is divided into two categories:

  • Recent: A time series of estimates that is based on the most recent Agricultural Resource Management Survey (ARMS) for dairy (2021) and estimated changes for years since then. The primary data sources used to develop these estimates are the ARMS dairy commodity version and prices published by the USDA, National Agricultural Statistics Service (NASS).
  • Historical: A time series of earlier U.S. and regional estimates from 1980 is on the Commodity Costs and Returns Data page, and State and size estimates from 2005–20 are on the Milk Cost of Production data page.

Preliminary annual estimates are released during the first week of May, and final annual estimates are released during the first week of October. Data files for each commodity are provided in the Microsoft Excel format and as comma separated value (CSV) files. Costs and returns information provided in these data may be used as benchmark estimates for policy analysis, agricultural extension and research efforts, agricultural consulting, and agricultural business planning.

Scope/Coverage of Data

Milk cost of production data are provided for dairy at State and farm size levels since 2005 on the Milk Cost of Production site, and at regional and national levels since 1980 on the Commodity Costs and Returns Data site. New estimates are provided twice annually, during the first week of May and the first week of October.

Milk cost and return records are "historical" accounts based on the actual costs incurred by producers. In this way, the records differ from "projected" accounts, often referred to as “enterprise budgets,” reported by land grant universities to assist in farm planning. The costs and returns of all participants in the production process—including farm operators, landlords, contractors, and contractees—are included in the account. For this reason, the accounts are often referred to as "sector accounts," representing the costs and returns of all resources used in the production of milk.


Milk costs and returns estimates are based on ARMS producer surveys conducted about every 5 to 6 years and updated each year with estimates of annual price changes. This ties the technology underlying the accounts to that used in the survey year. The most recent costs and returns estimates are based on the 2021 ARMS dairy survey.

Estimates made in the survey year should be regarded as the most reliable because the estimates reflect both prices and technologies used for milk production. The reliability of estimates in non-survey years likely varies by the degree of technical and structural change that has occurred since the last survey. The theoretical basis and accounting methods used for estimates of milk costs and returns since 2000 conform with standards recommended by the American Agricultural Economics Association (AAEA) Task Force on Commodity Costs and Returns.

Data Sources

Data used to establish milk cost and return estimates are based on producer surveys conducted about every 5 to 6 years and updated each year with estimates of annual price changes. Producers are surveyed using questionnaires developed by the NASS and ERS. Each farm sampled in the ARMS represents a known number of farms with similar attributes, so weighting the data for each farm by the number of farms the farm represents provides a basis for calculating target population estimates. To qualify for the ARMS dairy survey, operations must have had a minimum of 10 cows milked during the survey year. Survey base years for the Milk Cost of Production State and size estimates are 2005, 2010, 2016, and 2021. National and regional milk cost and returns estimates, which are found on the Commodity Costs and Returns Data page, go back to 1980.

Since cost-of-production data for milk are only collected about every 5 to 6 years, estimates for non-survey years use the actual survey year as a base, and use price indices to reflect year-over-year changes. This can cause discontinuities when new survey data replace these non-survey estimates. The magnitude of these discontinuities depends on how much technical and/or structural change occurs in the sector between the survey years, as well as changes in the sampling, questionnaire, and other data collection procedures.

USDA's most recent ARMS for dairy operations is 2021. This most recent annual data include milk producers in Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Michigan, Minnesota, Missouri, New Mexico, New York, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wisconsin. Observations from all States are used to develop national and regional estimates, and estimates by size. State-level estimates are developed for States where there are sufficient observations.

Structure of the Accounts

Milk costs and returns include estimates of both cash expenditures and noncash costs. A couple of examples of noncash costs follow. If a farmer uses savings to pay for operating inputs such as feed and thus pays no interest on operating loans, the farmer still incurs an economic cost because the savings could have earned a return in another use. Likewise, the farmer has an opportunity cost of their labor used in milk production because the cost could have been used on another farm or in off-farm employment.

Methods recommended by the American Agricultural Economics Association Task Force on Commodity Costs and Returns have been used to estimate the costs and returns of milk. Specifics of the recommendations can be found in the published Commodity Costs and Return Estimation Handbook. The following is an overview of the estimation methods.

The gross value of milk production is the cash receipts received from the sales of milk. The value of secondary products, such as cull animals and manure, are also included. Four basic approaches are used to estimate the commodity costs: direct costing, valuing input quantities, indirect costing, and allocating whole-farm expenses. The choice among approaches used to estimate cost items is mainly driven by the ability of farmers to report commodity specific costs for the item in question. For example, most farmers can report the cost of purchased feed but cannot report the value of homegrown feed produced on the farm. The following table shows the costs that are estimated under each of the four approaches.

Approaches used to estimate commodity costs
Direct costing Valuing input quantities Indirect costing Allocating whole-farm expenses
Purchased feed Homegrown feed Capital recovery General farm overhead
Veterinary and medicine Grazed feed   Taxes and insurance
Bedding and litter Unpaid labor    
Marketing Land    
Custom services Operating interest    
Fuel, lube, and electric      
Source: USDA, Economic Research Service.

Direct costing involves summarizing survey responses to questions about the amounts paid for each input item. For items such as purchased feed, direct costing is accomplished by asking the farmer how much of the total farm expenditures were for the dairy herd. Direct costing is the preferred cost estimation procedure because it does not require any assumptions about prices or quantities. However, direct costing only works well when the farmer has dairy-specific records or can recall the amount spent for the commodity.

Valuing input quantities combines survey data on the physical quantities used in the production process with secondary data on input prices. This approach is particularly useful in situations where farm-produced or farmer-owned inputs are used and opportunity costs are the best means of determining the input values. For example, the cost of homegrown feed is estimated by valuing the quantities of each used by crop prices. Unpaid labor hours are valued using an estimate of the wages earned off-farm by farm operators. Operating interest is an estimate of the opportunity cost of the investment in the operating inputs during the production period using the 6-month Treasury Bill interest rate.

Indirect costing. Capital recovery costs are computed for tractors, trucks, machinery, housing, feed storage, and for manure-handling equipment used in livestock production. National machinery replacement prices are used in the capital recovery estimates.

Allocating whole-farm expenses takes survey responses to whole-farm expense items and allocates them to milk production according to some allocation scheme. This method is particularly useful for estimating items for which costs cannot be directly attributable to a single commodity, but where all commodities must pay the cost. The allocation scheme used in the milk cost of production accounts is an estimate of the share of total farm operating margin—value of production minus operating costs—accounted for by the commodity. For example, if milk production accounts for 80 percent of the total farm operating margin, milk production is charged 80 percent of the overhead, taxes, and insurance costs. General farm overhead costs include costs for farm supplies, marketing containers, hand tools, power equipment, maintenance and repair of farm buildings, farm utilities, and general business expenses. Taxes include non-real estate property taxes and insurance is farm property insurance, excluding crop insurance.

Glossary of Terms

Often, we are asked questions about the meaning of the terms and concepts ERS uses in describing milk costs and returns. This glossary is intended to provide users with working definitions of key terms and a better understanding of how these concepts are applied in estimating the performance of the farm production sector.

Allocated overhead: Allocated overhead is a category of expenses recommended by the American Agricultural Economics Association (AAEA). These expenses include costs of hired labor, opportunity cost of unpaid labor, capital recovery of machinery and equipment, opportunity costs of land, general farm overhead, and taxes and insurance.

Capital recovery: Capital recovery cost is an estimate of the cost of replacing the capital investment in machinery and equipment that is used up in the annual production process, plus interest that the remaining capital could have earned in an alternative use. Capital recovery is estimated based on replacement prices paid for farm machinery each year. An estimate of the long-run rate of return to farm assets out of current income (10-year moving average) is used as the interest rate in the capital recovery estimate.

General farm overhead: General farm overhead costs are the expenses for items such as: farm supplies, marketing containers, hand tools, power equipment, maintenance and repair of farm buildings, farm utilities, and general business expenses that cannot be directly attributed to a single farm enterprise. Costs of general farm overhead items are allocated to milk production based on the relative contribution of milk production to total farm operating margin (i.e., the value of production minus operating costs).

Land costs: Land is a specialized input. Its value as a production input depends on the value of the product it produces, which is reflected in rental costs. Because an alternative use for land for any landowner is to rent it to someone who will produce the same commodity, ERS values land in cost-of-production accounts at its rental value.

Operating costs: Operating costs are a category of costs similar to variable costs. These costs include inputs such as feed, veterinary and medicine, and interest on operating capital. However, hired labor is not included under operating costs but is considered as allocated overhead.

Taxes and insurance: Taxes and insurance are overhead costs that are not directly attributable to a farm enterprise but must be paid by all enterprises. Property taxes and insurance are allocated to each commodity based on their relative contribution to total farm operating margin (i.e., value of production minus operating costs). Real estate tax costs were excluded because they were not netted out of the land cost.

Unpaid labor: Unpaid labor includes the opportunity costs of providing unsalaried labor. Labor provided by the farm operator and labor services provided by partners and family members are examples of unpaid labor. Unpaid labor hours are measured directly in commodity surveys. Unpaid labor is valued at an estimate of the off-farm wages paid to farm operators working off-farm.

Variable costs: Variable costs are the out-of-pocket cash expenses paid for inputs that are unique to the commodity being produced. Variable expenses depend on production practices, input quantities, and input prices. These expenses include inputs such as feed, veterinary and medicine, and hired labor.

Estimating Milk Costs for Non-survey Years

For non-survey years, annual U.S. prices-paid indexes produced by USDA-National Agricultural Statistics Service are used to update expenses for farm inputs. The variables used in the model are:

  • $ARMS = Weighted-average national milk costs of production developed from the most recent ARMS of milk producers, currently 2021.
  • $NASSINDX = Ratio of annual U.S. prices paid indexes for selected inputs from the NASS Quick Stats reports. For example, the index for 2022 feed grains equals the 2022 U.S. index for prices paid for feed grains divided by the average 2021 U.S. index for prices paid for feed grains.

Equations for individual components of the model are:

Gross Value of Production:

Milk sold = $ARMSMilksold * $NASSINDXmilk price received

Cattle = $ARMSDairy animal sales * $NASSINDXBeef cow price received

Other income = $ARMSOtherInc * $NASSINDXfertilizer totals

Operating costs:

Purchased feed = $ARMSPurchased feed * $NASSINDXFeed grains

Homegrown harvested feed = $ARMSHomegrown harvested feed * $NASSINDXHay and forages

Grazed feed = $ARMSGrazed feed * $NASSINDXHay and forages

Veterinary and medicine = $ARMSVeterinary and medicine * $NASSINDXAg services

Bedding and litter = $ARMSBedding and litter * $NASSINDXAg services

Marketing = $ARMSMarketing * $NASSINDXAg services

Custom services = $ARMSCustom services * $NASSINDXAg services

Fuel, lube, and electricity = $ARMSFuel, lube, and electricity * $NASSINDXFuels

Repairs = $ARMSRepairs * $NASSINDXFarm repairs

  • $NASSINDXFarm repairs = sum (((2022 Building materials index / 2021 Building materials index) * 0.5), ((2022 machinery total index / 2021 machinery total index) * 0.5))

Other operating costs = $ARMSOther operating costs * $NASSINDXAg services

Interest on operating capital = (sum current year operating costs * (1 + ($NASSINDXShort Term Interest / 100 )) ^ 0.5) - current year operating costs

Allocated overhead:

Hired labor = $ARMSHired labor * $NASSINDXWage rates

Opportunity cost of unpaid labor = $ARMSOpportunity cost of unpaid labor * $NASSINDXNon-farm wage

Capital recovery of machinery and equipment = $ARMSCapital recovery of machinery and equipment * $NASSINDXFarm machinery repairs

  • $NASSINDXFarm repairs = sum (((2022 Building materials index / 2021 Building materials index) * 0.5), ((2022 machinery total index / 2021 machinery total index) * 0.5))

Opportunity cost of land (rental rate) = $ARMSOpportunity cost of land (rental rate) * $NASSINDXRent

Taxes and insurance = $ARMSTaxes and insurance * $NASSINDXAg services

General farm overhead = $ARMSGeneral farm overhead * $NASSINDXSupplies and repairs

Strengths and Limitations

Milk costs and returns estimates may be considered as average estimates at national, regional, State, or size levels. Because production technology, input usage, and production efficiency can vary widely across farms, these estimates cannot be assumed to represent all farms or all production conditions. In cases where there is sufficient coverage of alternative production practices, additional analysis may be conducted to further delineate milk costs and returns under alternative production scenarios.


The AAEA Task Force Commodity Costs and Returns recommendations can be found here:

Agricultural Resource Management Survey questionnaires can be found here:

Recommended Citation

U.S. Department of Agriculture, Economic Research Service. Milk Cost of Production data.