How Milk Mooooves

By Kari Carlson
AgFirst Farm Credit Bank

The dairy industry has been in the news quite a bit lately, so I thought I’d write about how it works. Have you ever wondered how milk actually gets from Bessie to the grocery store, or how prices are set? It’s sort of complicated, but let me try to explain.

Dairy cows, many of which are black and white Holsteins, produce about six to eight gallons of milk a day, which is more than 2,300 gallons a year. Holsteins’ milk is made up of 87.7percent water, 3.7 percent milk fat, and 8.6 percent skim solids. Dairy cows are usually milked twice a day using mechanical vacuum milking machines, and the milk flows from the cow through glass or stainless steel pipes into a refrigerated milk tank. There, it is cooled to about 40 degrees Fahrenheit. Within just a few hours, the milk is pumped into a refrigerated truck and taken to a processing plant. Before it is unloaded, it is checked for antibiotic residue and, if all is clear, is pumped into refrigerated tanks at the plant.

Next, the milk goes through a series of events - separation of the heavier milk fat from the lighter milk to produce cream and skim milk; pasteurization, which heats the milk to high temperatures to kill harmful bacteria; and homogenization, the process that reduces the size of fat globules into tiny bits that are dispersed evenly throughout the milk. Homogenization gives milk its rich, white color and smooth texture. The milk is then cooled back down to 40 degrees Fahrenheit and pumped into coated paper cartons or plastic bottles, ready to be sent to retail outlets. These steps, all taken with safety and quality in mind, ensure that we, the consumers, receive a fresh and wholesome product.

If you’ve bought
a gallon of milk recently, you may have noticed that the price is a good bit lower than it was last summer (when it was as high as $4 a gallon). You can see the sharp decline on the graph to the right. Let me explain why prices have gone down and how the price of milk is actually set. U.S. dairy exports soared in 2008, due in part to drought conditions in New Zealand and the melamine scare in China. Unfortunately, as the current recession worsened, the demand for milk (especially export demand) decreased dramatically, leaving U.S. farmers with too much milk and too many cows. Basic economics tells us that when supply is greater than demand, prices will fall. The lower price of milk has greatly impacted dairy farmers, who, unfortunately, have no control over the prices.

Many dairy farmers are paid under the Federal Milk Marketing Order (FMMO) program. The objective of the program is to maintain orderly marketing conditions and assure that we, the consumers, have an adequate supply of wholesome milk at all times. An FMMO is a regulation issued by the U.S. Department of Agriculture that sets the minimum price, by geographic region, that processors and handlers are allowed to pay to dairy farmers for milk. About 70% of U.S. milk production is regulated by FMMOs.

The price that farmers are paid has been volatile for years, which has created a chain of boom and busts felt from the pastures to the grocery store. But this is a particularly difficult down-cycle for dairy farmers, as prices paid to farmers are at historic lows.

The graph to the left shows the prices that farmers received for fluid milk over the past year and a half. Farmers are paid per 100 lbs. of milk they sell, designated by cwt (centum weight), which is roughly 11.6 gallons. Payments were as high as $21 per cwt in January 2008 and dropped below $9.50 per cwt in March 2009. Many dairy farmers’ break-even point is around $15 per cwt, and you can see that prices have been well below that mark. Hopefully, for the sake of our dairy industry, our farmers will soon receive more reasonable prices for their milk.  

I hope my explanation of the milk production process makes sense. Thanks to the farmers and processors who produce our milk and other dairy products. We all reap the benefits. Now, go buy yourself a gallon! After all, what goes better with your favorite sweet treat than an ice-cold glass of milk? Come to think of it, a tall glass would be good right about now.

Dairy: Background. 19 March 2009. 4 June 2009
Dairy: Policy. 20 March 2009. 4 June 2009
Federal Milk Marketing Orders. 27 May 2009. 4 June 2009
Milk Cows and Milk Production. 4 June 2009

Special thanks to the folks at the University of Wisconsin’s Dairy Marketing and Risk Management Program, whose Web site provided me with great information and data for this article. For more information about the dairy industry, check out their site at

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