Milk Prices Explained

Milk prices remained elevated due to decreased supply and rising disposable income trends influenced the market. 

The milk market in North America experienced a slight decline in production because of aging cows and adverse weather conditions, leading to lower yields. This translated to increased imports to meet domestic demand.

The U.S. dairy industry is navigating fluctuating demand signals, with prices holding steady at around $20 per hundredweight. However, the anticipated increase in processing capacity in 2025 will drive prices higher if competition for milk remains strong.

In Europe, milk production is decreasing due to environmental regulations and varying weather conditions. Germany, the Netherlands, and Ireland faced supply constraints, impacting overall production.

Conversely, Asia posted a tepid market (particularly in China) due to an oversupply of domestic milk. The Middle East experienced increased demand for milk powder and whole milk, driven by growing populations and rising incomes.

Why are milk prices fluctuating?

1. Supply and Demand

For years, the market has seen an imbalanced supply and demand for milk. For instance, the market value of milk increased to 39% after the pandemic and regularly fluctuates due to frequent supply chain constraints. However, milk’s marketability takes a slow pace in the first quarter of 2024 due to customers looking for value in their purchased products because of inflation.

2. Production Costs

The declining milking capacity of cows due to increasing feed value, labor, and transportation costs resulted in a large exit of dairy farmers.

Additionally, the USDA reported a steep decline in cow numbers to 134,000, causing a 0.1% decrease in milk production. Thus, this created a huge gap in milk production efficiency and kept milk price hikes.

3. Seasonal Variations

The spike in milk prices is particularly high during winter months as cows produce less milk in this season causing low production, increased demand, and increased prices.

4. Butter and Dry Milk Products

The increasing demand for butter and other milk powder products is paving the way for a milk price hike as natural milk is the key ingredient in making butter and other dry processed dairy products.

Which variables impact the price of milk?

• Supply and Demand
• Production Costs
• Seasonal Variations
• Butter and Dry Milk Products
• Global Market Conditions
• Government Policies

Where did the milking process originate?

Generally, milking is an ancient practice of extracting milk from cows. This practice is a reliable source of food and an essential substitute for crops, especially in places where crop cultivation is hard.

Also, this process started in the Neolithic age, specifically in Britain and Northern Europe according to unearthed potshards discovered by scientists.

Furthermore, the introduction of cattle to Baja California in 1679 by the Spanish Jesuit Priest, Eusebio Kino made way for cattle farming in the U.S. Additionally, in the early 19th century, milk production started growing across the state along with the alcohol distillery business.

Today, 24% of global milk production comes from India, the largest milk producer in the world. The remaining percentage of production comes from the U.S., Pakistan, Brazil, China, and Russia.

What is the future price of milk?

The changing weather systems, evolving consumer diets, and the rise of plant-based milk alternatives will shape the market. 

Increasing temperatures and frequent extreme weather events can stress dairy cows. Heat stress causes cows to eat less and drink more water, negatively affecting their milk production capacity. Additionally, changes in precipitation patterns influence the quality and availability of feed crops, impacting milk production.

Farmers are adopting strategies, such as improved barn cooling systems and better feed management to mitigate these effects.

While the extensive use of commercial dairy products fuels its market, there is a growing trend towards plant-based diets, leading to an increased demand for almond, soy, and oat milk. This shift in consumer preferences is affecting the marketability of traditional dairy milk.

As a result, the dairy industry is innovating new formulations, like lactose-free milk, organic milk, and fortified milk with added vitamins and minerals to cater to health-conscious customers. These new products create additional market segments and maintain the relevance of dairy milk in the face of competition from plant-based alternatives. 

Overall, market analysts expected elevated milk prices in 2030 at $21.35 per hundredweight.