Readings

Livestock, Dairy and Poultry Outlook (monthly) provides key dairy data, market outlook, and forecasts. 

The Effects of the Margin Protection Program for Dairy Producers

The Margin Protection Program for Dairy Producers offers protection when the difference between the U.S. all-milk price and the estimated average feed cost falls below an elected level. The program's potential impacts on average margins and risk at different levels of coverage for both the protected margin ($4-$8 per cwt) and the share of production covered (25-90%) are estimated for 13 regions (ERR214, September 2016).

Changing Structure, Financial Risks, and Government Policy for the U.S. Dairy Industry

Congress reorganized dairy policy in the Agricultural Act of 2014 when it eliminated three programs and created the Dairy Margin Protection Program. The new program aims to provide farmers with financial protection against risks from increasing vola­tility in milk and feed prices. These developments occurred amid ongoing structural change toward larger dairy farms, as well as ongoing change in dairy product demand, away from fluid milk, and toward manufactured products sold in domestic and export markets. This report focuses on the interrelated topics of structural change in dairy production, changes in dairy product markets, growing price volatility, and dairy policy. It details the major developments in each, traces the linkages among them, and identifies the challenges that structural change, evolving product markets, and price volatility pose for policy (ERR-205, March 2016). 

Livestock Gross Margin-Dairy Insurance: An Assessment of Risk Management and Potential Supply Impacts

Public risk management policies for dairy producers have the potential to induce expansion in milk supplies, which might lower farm-level prices and offset risk-reduction benefits. An evaluation of USDA’s Livestock Gross Margin-Dairy insurance program finds economic downside risk significantly reduced, with the potential to induce modest supply expansion if widely adopted (ERR-163, March 2014).

Why Are Americans Consuming Less Fluid Milk? A Look at Generational Differences in Intake Frequency

Decreases in intake of fluid milk since the 1970s mainly reflect changes in consumption frequency, not portion sizes. Generational differences in intake frequency have contributed to the per capita decline in intake (ERR-149, May 2013).

Households' Choices Among Fluid Milk Products: What Happens When Income and Prices Change?

Many households suffered a decrease in income during the 2007-2009 recession. This study examines households' purchases of fluid milk products in response to income and price changes. It focuses on three levels of fat content, two package sizes, and organic versus conventional milk (ERR-146, April 2013).

A Quarterly Econometric Model for Short-Term Forecasting of the U.S. Dairy Industry

This research evaluates the econometric approaches employed by USDA’s Economic Research Service (ERS) to contribute to the dairy sector forecasts published in the monthly World Agricultural Supply and Demand Estimates (WASDE) report. To generate the estimates, a quarterly model of the U.S. dairy industry is specified using data for fourth-quarter 1998 (Q4/1998) to first quarter 2009 (Q1/2009), and the model is estimated and validated employing data for Q2/2009 to Q1/2010. Different forecasts are generated using a variety of single equation and system methods, which are then evaluated in terms of forecast precision or predicting turning points in the data. Different approaches, however, more effectively forecast different variables. Vector autoregression with exogenous variables outperforms structural regression models for forecasting prices, but single and system estimations of structural models are superior to time series models for forecasting some items in farm supply and commodity balance sheets (TB-1932, January 2012).

Carbon Prices and the Adoption of Methane Digesters on Dairy and Hog Farms

Biogas recovery systems collect methane from manure and burn it to generate electricity or heat. Burning methane reduces its global warming potential, thereby reducing greenhouse gas (GHG) emissions. Climate change mitigation policies that effectively put a price on GHG emissions could allow livestock producers to “sell” these reductions to other greenhouse gas emitters who face emissions caps or who voluntarily wish to offset their own emissions. Depending on the direction and scope of future climate change legislation, income from carbon offset sales could make methane digesters profitable for many livestock producers. By modeling the main determinants of producers’ decisions to adopt biogas recovery systems, we illustrate how the price of carbon influences this decision and the potential supply of carbon offsets from the livestock sector. (EB-16, February 2011). For full report, see Climate Change Policy and the Adoption of Methane Digesters on Livestock Operations, link below (ERR-111, February 2011).

Climate Change Policy and the Adoption of Methane Digesters on Livestock Operations

 

An Analysis of U.S. Household Dairy Demand

This report examines retail purchase data for 12 dairy products and margarine from the Nielsen 2007 Homescan retail data. Selected demographic and socioeconomic variables included in the Nielsen data are analyzed for their effects on aggregate demand and expenditure elasticities for the selected products. A censored demand system is used to derive the demand elasticities. The resulting estimates revealed that the magnitudes of 10 of the 13 own-price elasticities are greater than 1; substitute relationships are found among most dairy categories; expenditure elasticities are 1 or greater for 7 of the 13 products; and demographic and socioeconomic variables are statistically significant contributors to dairy demand (TB-1928, December 2010).

Long-Term Growth in U.S. Cheese Consumption May Slow

Cheese production and markets have emerged as important dairy industry elements over the past three decades. Supply-and-use analysis shows an upward trend in total cheese consumption over the past three decades. Nielsen 2005 retail Homescan data were used to analyze cheese consumption by location, as well as by income, age, and racial/ethnic groups. Own-price and expenditure demand elasticities were also calculated using the Nielsen data. To the extent that increases in consumer food expenditure translate into more cheese purchases, it is expected that total cheese consumption will continue to rise. However, changes in the demographic profile of the U.S. population may somewhat slow future growth (LDPM-193-01, August 2010).

"Organic Dairy Sector Evolves To Meet Changing Demand"

Declining demand for organic products in response to the economic downturn has slowed the rapid growth in organic milk production.  Economic forces, primarily lower production costs, may be pushing organic dairies to be more like conventional dairies in terms of size, location, and the types of technologies used.  More specific pasture requirements for organic certification proposed under USDA’s National Organic Program may affect how the organic milk production sector evolves (Amber Waves, March 2010). 

Characteristics, Costs, and Issues for Organic Dairy Farming

This report uses 2005 ARMS data for U.S. dairy operations, which include a targeted sample of organic milk producers, to examine the structure, costs, and challenges of organic milk production. Findings suggest that economic forces have made organic operations more like conventional operations and that the future structure of the industry may depend on the interpretation and implementation of new organic pasture rules (ERR-82, November 2009).

"Grain Prices Impact Entire Livestock Production Cycle"

Between 2006 and 2008, feed costs nearly doubled and are expected to result in lower meat and dairy production in 2009.  Feed prices have declined since mid-2008 and are expected to be lower in 2009, but the biological timeline of livestock production means meat producers are limited in what they can do in the short run to change production.  Changes in the U.S. livestock industry structure and the use of alternative feeds, such as byproducts from ethanol production, will help reduce the impact of higher input costs on livestock producers (Amber Waves, March 2009).

"Whey, Once a Marginal Byproduct, Comes Into Its Own"

Whey, a natural byproduct of cheese production, was once discarded or used as animal feed. Recently, however, it has been “discovered” by traders and food processors for its high protein content and other properties as a food additive. (Amber Waves, April 1, 2008). For the full report, see Whey Price Decline Follows a Short Run-Up (October 2007, page 5). 

"Low Costs Drive Production to Large Dairy Farms"

This research indicates that average production costs per hundredweight (cwt) of milk produced fall sharply with herd size. Large dairy farms earn substantial profits, while most smaller operations experience economic losses. Given the cost advantages, the shift of dairy production to large farms contributes to rising industry productivity and lower real dairy prices. (Amber Waves, September 2007). For the full report, see Profits, Costs, and the Changing Structure of Dairy Farming, link below (ERR-47, September 2007).

Profits, Costs, and the Changing Structure of Dairy Farming

 

Retail and Consumer Aspects of the Organic Milk Market

This report analyzes retail scanner data from 2004 and finds that most purchasers of organic milk are White, high income, and well educated. Consumer interest in organic milk has burgeoned, resulting in rapid growth in retail sales of organic milk. Most organic milk is sold in supermarkets, and organic price premiums are large and vary by region (LDPM-155-01, May 2007).

The Impact of Big-Box Stores on Retail Food Prices and the Consumer Price Index

This report focuses on retail food- market dynamics and how they affect food price variation across store formats. The differences in prices across store formats are especially noteworthy when compared with standard measures of food price inflation over time. Over the past 20 years, annual food price changes, as measured by the CPI, have averaged just 3 percent per year, while food prices for similar products can vary by more than 10 percent across store formats at any point in time. Since the current CPI for food does not fully take into account the lower price option of nontraditional retailers, a gap exists between price changes as measured using scanner data versus the CPI estimate, even for the relatively low food-inflation period of 1998-2003. This study estimates that the CPI for dairy products overstates food price changes by 0.5 to 2.5 percentage points per year for dairy, eggs, and butter/margarine (ERR-33, December 2006).

Impacts of Trade Liberalization on the U.S. Dairy Market PDF icon (16x16)

This report reviews the economic effects of trade liberalization in world dairy markets by examining effects on farm milk prices and production, producer and consumer surpluses, and government revenues and program expenditures. The empirical analysis suggests that multilateral trade liberalization leads to generally modest price and production impacts on U.S. milk producers (Contractor and Cooperator Report No. 21, August 2006).

Dairy Backgrounder

This publication reports that shifts over time in consumer demands, the location and structure of milk production, industry concentration, international markets, and trade agreements have dramatically altered the U.S. dairy industry and changed the context for dairy policies and the sector as a whole. In the future, the U.S. dairy industry is likely to become more fully integrated with international markets (LDPM-145-01, July 2006).

Trade Liberalization in International Dairy Markets: Estimated Impacts

This report examines issues related to modeling complex policy regimes that affect international dairy markets. Average bound tariffs for dairy remain among the highest of all agricultural commodities, and dairy trade is characterized by a large number of megatariffs and tariff-rate quotas (TRQs). Modeling results indicate that liberalization would reduce world dairy product supplies and increase the value of dairy trade (ERR-16, February 2006).

"U.S. Dairy at a New Crossroads in a Global Setting"

This report highlights changing economic and policy forces facing the U.S. dairy industry today. As dairy markets evolve, U.S. milk producers and processors are positioned to pursue both domestic and export market opportunities. (Amber Waves, November 2005). For the full report, see U.S. Dairy at a Global Crossroads, link below (ERR-28, November 2006).

U.S. Dairy at a Global Crossroads

 

Dairy Policies in Japan

This report provides a detailed description and analysis of Japan's policies that support its milk producers and regulate dairy markets. If Japan's policies were liberalized, prices and production in Japan would fall, but sizable milk production would remain (LDP-M-134-01, August 2005).

Economic Effects of U.S. Dairy Policy and Alternative Approaches to Milk Pricing

This report shows that the effects of dairy programs on markets are modest and that current dairy programs are limited in their ability to change the long-term economic viability of dairy farms. Other forces such as technology, changing consumer demand, and changes in the marketing and processing sectors, while difficult to measure, are likely to have more impact (Report to Congress, July 2004). (This file is 1.5 MB in size and may take time to download.)

Effects of U.S. Dairy Policies on Markets for Milk and Dairy Products

This report examines the economic effects of the principal current dairy sector programs. The analytical results address the economic impacts of Federal milk marketing orders, direct payments to producers, price supports, and export programs (TB-1910, May 2004).

Characteristics and Production Costs of U.S. Dairy Operations

Total costs of producing milk in 2000 ranged from an average of $11.58 per hundredweight (cwt) of milk sold in the Fruitful Rim-West region to $18.23 per cwt in the Eastern Uplands. Milk producers in the West had a significant cost advantage over producers in other regions in 2000 because their operations were much larger. Operations with 500 or more milk cows had significantly lower total operating and ownership costs, indicative of the economies of size experienced by larger operations. Also, differences in animal performance, feed efficiency, and labor efficiency were critical in determining whether producers were in the low- or high-cost group for producing milk. These findings were based on the 2000 Agricultural Resource Management Survey (ARMS), the most recent national survey of milk producers (SB-974-6, February 2004).

Manure Management for Water Quality: Costs to Animal Feeding Operations of Applying Manure Nutrients to Land

This report evaluates the costs of spreading manure on cropland at the farm, regional, and national levels. EPA regulations enacted in February 2003 require concentrated animal feeding operations (generally the largest producers of hogs, chicken, dairy, and beef cattle) to meet nutrient application standards when spreading their manure on cropland in order to preserve water resources from nitrogen and phosphorus runoff. USDA is encouraging all animal feeding operations to do the same. If all operations meet the new standards, increases in production costs could be felt throughout the food and agricultural system (AER-824, June 2003).

The Changing Landscape of U.S. Milk Production

This report illustrates how milk production has changed in the United States since 1975. Questions of how much milk is produced, where it is produced, and by whom are important both nationally and regionally. Dairy farms continue to grow, become more specialized, and, in some regions, more concentrated. But small traditional dairy farms also remain part of the industry (SB-978, June 2002).

Milk Pricing in the United States

This publication provides a primer on the U.S. milk market, cutting through the complexities to describe key pricing mechanisms and to provide a basis for more detailed study. Farm milk prices in the United States are determined by public and private pricing institutions whose interactions have become complex (AIB-761, February 2001).

Links

U.S. Department of Agriculture

Agricultural Marketing Service

Farm Service Agency

Foreign Agricultural Service

  • Dairy page. Includes programs, data and analysis, news, and features.

National Agricultural Statistics Service (NASS). Historical data, publications, and the Census of Agriculture.

  • NASS Quick Stats. Comprehensive tool for accessing agricultural data published by NASS.

Risk Management Agency. Information about risk management programs available to producers.

Rural Development

Cooperatives. Includes education, research, data, publications, funding information, and technical assistance.

World Agricultural Outlook Board

  • Long-term projections. Annual long-term commodity projections for the agricultural sector, released in February each year.

National Agricultural Library

National Agricultural Library Digital Repository (NALDR). Online browsing of historical ERS Agricultural Economic Reports and Agriculture Information Bulletins.

Other Government Agencies

U.S. Department of Commerce, Census Bureau. Census data on population is used for computations of per capita dairy product consumption. The Economic Census provides information on dairy product firms by product used.  The Census Bureau is the provider of official U.S. trade statistics.

U.S. Department of Commerce, Bureau of Economic Analysis. Macroeconomic information used for market outlook and research work.

U.S. Department of Labor, Bureau of Labor Statistics, Databases, Tables, and Calculators by Subject. Consumer and producer price indices and average retail prices.

U.S. Food and Drug Administration. Regulations and compliance related to sanitation of interstate milk shipments, labeling of fluid milk and dairy products, and evaluation of new animal drugs.

United States Trade Representative, Agriculture. Agricultural trade position of the United States and other trade-related information.

United States International Trade Commission.  Makes determinations in proceedings involving import injury claims, provides trade analysis and information, and maintains the U.S. tariff schedule.

Other

California Department of Food and Agriculture, Dairy. California's state milk marketing program operation and related data.

World Trade Organization. Multilateral trade data and information, including agriculture.