Market Update
November 20, 2009
Dairy Market Update: U.S. Dairy Is a Growth Industry
By Bob Yonkers, IDFA Chief Economist, Ph.D.
The market for U.S. milk and dairy products, both domestically and internationally, has been growing dramatically in recent decades. As a result, U.S. farm milk production has grown to about 190 billion pounds per year.
Looking back, however, U.S. dairy has not always been a growth industry. Prior to 1980, U.S. farm milk production bounced around 120 billion pounds for decades (Figure 1). Milk production in 1979 was 123 billion pounds, about the same as in 1955, and in 1980 milk production of 128 billion pounds beat the old record set in 1964. Obviously, overall demand for milk and dairy products in the U.S. was stagnant at best, and total per capita consumption of dairy suffered serious declines during the years between 1945 and 1974, dropping nearly 36 percent from a high of 840 pounds to 540 pounds.
It has been a different story since then. U.S. farm milk production has increased from 123.3 billion pounds in 1979 to 190 billion pounds in 2008, an increase of 66.7 billion pounds, or 54 percent. Growth in the total demand for milk and dairy products is the only reason our industry has been able to expand. This came about largely by stopping the long-term decline in the per capita consumption of total milk and dairy products.
The good news is that per capita consumption of dairy in the United States grew from a low of 540 pounds in 1974 to 620 pounds in 1987. The bad news is that amount remained a record high until 2007 when it reached 624 pounds; in 2008 it was 635 pounds, the highest level since 1966 (Figure 2).
This past decade, most of the demand growth for U.S. dairy products has come from the export market. In testimony before a U.S. Senate agriculture subcommittee on October 27, two witnesses provided estimates that in 2002 about 5.1 percent of U.S. farm milk component production was exported in the form of various dairy products. This more than doubled to 10.8 percent in 2008, and so far in 2009 it remains, at 8.7 percent, above any year prior to 2006.
In addition, the outlook for dairy exports remains strong. The U.S. Department of Agriculture reports the most recent two-week average international dairy prices now exceed our domestic wholesale prices for butter, milk powder, cheddar cheese and dry whey (Figure 3).
It is also important to note that at least some of the increased demand for dairy comes from our own domestic market, as imports are filling a smaller share in recent years. At that October 27 Senate hearing, it was noted that dairy imports reached 4.6 percent of U.S. farm milk component production in 2005, but has since fallen, reaching 4.0 percent in 2008 and only 3.5 percent so far in 2009. That means more of our domestic dairy demand in recent years is being met by our own farm milk production rather than by imported dairy products.
While the U.S. dairy industry has suffered from the global financial crisis and resulting economic recession in many dairy importing countries, the world market is recovering. For our industry to continue to grow at all, let alone at a pace similar to the past 30-year trend, we must continue serving the growing international market in addition to developing innovative new dairy products and ingredients to serve our domestic consumers.
Figure 3
Source: Testimony of Doug Nuttelman, dairy producer from Stromsburg, Neb.,
before Senate Agriculture Committee, October 27, 2009
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