Milk Prices 101

Jul 18, 2017

It may come as no surprise that much of our agriculture is wrapped up in dairy - after all, Wisconsin is called America's Dairyland. But despite the moniker, Wisconsin is not immune to the market forces that drive the price of dairy both here and throughout the country.

You might notice when you go to the grocery store, the price of milk varies a lot. In fact, it changes so much that it’s routine for some groceries and delis to post the price outside of the store - like signs at a gas station.

So what makes the price of milk so variable, and what does that volatility mean for the Dairy State? Bob Cropp is a professor emeritus and dairy marketing policy specialist at the University of Wisconsin in Madison. He says there are three main factors that impact the price of dairy nationwide. 

"One is the level of milk production: how much milk we're producing," he explains. "The second would be demand, our domestic demand: how our cheese is selling, butter, fluid milk is selling, other dairy products are selling. And a third one, which is relatively new... is exports of dairy products." 

"Milk is very sensitive to relatively small changes. It's a perishable product... you can't store it like corn or wheat or something, and wait for better prices."

Cropp notes that until the mid-90s, dairy production was heavily subsidized by the federal government. Exports at that time were largely a product of surplus dairy production. Now, Cropp says we export 14-15% of our dairy to other countries, with most of it ending up in Mexico and Canada. 

Changes to government subsidies have left dairy markets less stable, according to Cropp.

"Milk is very sensitive to relatively small changes," he explains. "It's a perishable product, farmers got to milk the cows every day, got to go to the market, and the milk we drink goes through real fast. You keep cheese and butter a little longer, but you can't store it like corn or wheat or something, and wait for better prices." 

"It does not take a very large change in milk production, change in exports, or demand, to result in one, two, three, four dollar change in the milk price."

He continues, "It does not take a very large change in milk production, change in exports, or demand, to result in one, two, three, four dollar change in the milk price."

With the Trump Administration considering tariffs on imports, some economists fear U.S. dairy exports could be impacted. The Trump Administration recently released its most detailed blueprint for an overhaul of the North American Fair Trade Agreement (NAFTA), but has sent mixed signals since the campaign, with talk of leaving the agreement altogether. 

"If we done away with NAFTA and removed our ability to export like we are now to say Mexico, that would be quite devastating. That is by far our largest market... So if somehow they retaliated, stopped buying from us, whatever - you take that amount of exports away from us, we would see the price of milk drop substantially," says Cropp.