Oregon Dairy Production Grows as Dairy Prices Stabilize in 2017June 8, 2017 Dairy has a long tradition in Oregon. Many of Oregon’s early pioneers were dairy farmers and manufacturers. Oregon dairy products are recognized worldwide for their high quality and employment is growing as a result. Dairy farmers and manufacturers provide jobs throughout the state. Dairy farms in Oregon were historically small, often employing a family and a few other individuals, but recent trends show dairy farms are getting bigger. Their primary product is milk, the official beverage of the state of Oregon. The milk is sold to dairy manufacturers who then sell the milk and use it to make cheese, butter, yogurt, ice cream, and other dairy products. Dairy manufacturers usually employ more people than dairy farms and are less numerous. Together, they comprise what we generally refer to as the dairy industry in Oregon.
The dairy industry, like other agricultural and manufacturing industries, has undergone significant changes since the late 19th century. Consolidation, technology, mechanization, and increased competition changed Oregon’s dairy industry. Today, dairy is still thriving thanks to strong demand for its distinct, high quality products.
Production and Value
Rising milk prices lifted Oregon’s sales to a record $650 million in 2014. Milk production reached 2,550 million pounds in 2014, a slight gain of 1.4 percent over 2013. The value of milk sales, however, climbed nearly 23 percent in 2014, an increase of $122 million over 2013’s $528 million.
Milk production held steady in 2015 then rose by 1.6 percent in 2016 to a new high of 2,593 million pounds. Despite record production, the value of sales fell to $465 million in 2016, a loss of 1.6 percent over 2015 and its lowest total since 2010’s $412 million. In 2010, production totaled 2,399 million or about 8 percent below 2016.
Looking back to 2002, Oregon’s milk production rose tremendously, climbing nearly 22 percent or 376 million pounds to reach 2,093 million pounds. Production gains continued over the next two years, reaching 2,270 million pounds in 2004, an increase of 8.5 percent over 2002. Production steadied at that level for several years before Oregon milk producers expanded production again in 2010, leading to an increase of 151 million pounds or 6.7 percent followed by a gain of 80 million pounds or 3.3 percent in 2011.
Volatile Milk Prices Fall but Stabilize in 2017
Most of the milk and dairy products produced in Oregon and the U.S. are consumed domestically, but supply and demand of dairy products globally can affect U.S. prices.
Consumer prices for milk experienced a price surge leading up to the Great Recession, rising by 20.3 percent over the year ending in November 2007. Higher demand for dairy products – in particular, dry milk exports to China and Southeast Asia – pushed prices higher. Drought in Australia and New Zealand, other major milk exporters, also drove prices up. Between 2006 and 2008, the total export value of U.S. milk solids more than doubled, while total export volume increased by 22 percent. U.S. dairies increased milk production to try and keep up with the increased demand. Cheese prices lagged milk somewhat, reaching an over the year gain of 14.9 percent in June 2008.
Meanwhile, the cost of production for dairy products was going up as well. Transportation costs increased with rising oil prices. Feed prices also increased. In particular, the price of corn increased sharply due to government mandated increases in the use of ethanol (made from corn) in gasoline, higher transportation costs, increased worldwide demand, and supply shortages. Consumers inevitably felt these increased production costs and supply shortages in the form of higher prices for dairy products.
As the Great Recession took hold, milk prices fell dramatically, dropping by 18.4 percent over the year ending in July 2009. Milk prices continued to fall, with recovery taking hold in March 2010 when prices rose by 2.9 percent over the year. Cheese prices fell by 10.8 percent over the year ending in August 2009, turning the corner in May 2010 with a gain of 1.0 percent. Consumer prices for ice cream and other dairy products were far less volatile than the price trends experienced by milk and cheese, at least on the downhill side.
Demand for dairy products decreased rapidly and exports slowed. Suddenly, there was a supply and demand imbalance. Milk prices dropped to a point where it made more sense for some farmers to slaughter some of their cows rather than milk them. To help the struggling dairy industry through the recession, the U.S. Department of Agriculture announced in August 2009 a temporary increase in prices paid for dairy products through the Dairy Product Price Support Program. This program essentially sets a price floor for butter, cheddar cheese, and nonfat dry milk for dairy manufacturers in the U.S. If the price of these dairy goods drops to specified levels, manufacturers can sell their goods in bulk to the government. USDA also took other steps to help the dairy industry in the recession, including the reduction of dry milk inventories and reactivation of the Dairy Export Incentive Program, which helps U.S. dairy exporters meet prevailing world prices in markets where U.S. dairy products are not competitive due to subsidized dairy products from other countries.
Milk prices surged by 13.1 percent over the year ending September 2011 and the trend continued through April 2012. In 2011, the price received by Oregon dairy farmers averaged $21.40 per 100 pounds of milk, $3.10 above 2008 and a far cry from the $13.70 farmers received in 2009.
Milk prices received by Oregon farmers rose to a record $25.70 in 2014 – but that peak was short lived, falling to just $18.60 in 2015, a loss of $7.10 or nearly 28 percent per 100 pounds. Through the first four months of 2017, milk prices rebounded somewhat, rising to $19.85 per 100 pounds, producing a gap of -$5.85, 23 percent below the 2014 peak.
U.S. Dairy Export Trade Data
According to the U.S. Dairy Export Council, U.S. Dairy exports totaled $4.8 billion in 2016, a drop of 10 percent from the prior year and a significant drop from 2014 which brought in a record $7.2 billion. Milk exports represented 14.2 percent of total U.S. production in 2016, a slight increase over 2015 (14.0%).
During the first quarter of 2017, cheese, milk powder, and whey products represented more than two-thirds of U.S. dairy exports. Dairy export volumes rose by 14 percent
during the first quarter of 2017 and values climbed by 17 percent (compared with the first quarter of 2016). Total dairy exports during the first quarter of 2017 were valued at $1.32 billion. March export values alone reached $482 million, a 22-month high. Monthly dairy exports have topped year-ago volumes for the past 10 months.
Nonfat dry milk/skim milk powder is typically consumed elsewhere, with 54 percent of U.S. production in the first quarter of 2017 exported. Whey and lactose products are likewise a mainstay for trade markets with 70 percent of U.S. lactose production and 42 percent of dry sweet whey exported. A much smaller share of total U.S. cheese production, 5.8 percent, found its way to export markets in the first quarter of 2017. Based on volume, first quarter 2017 whey exports were up by 27 percent over the year, nonfat dry milk/skim milk power exports increased by 19 percent and cheese shipments rose by 12 percent.
Dairy Product Manufacturing
Dairy product manufacturers add value to dairy farm production – processing raw milk into butter, cheese, ice cream, and condensed dairy products. Dairy manufacturing followed a trend of moderate but steady growth over 2000 to 2010, gaining about 640 jobs to average around 2,520. Dairy product manufacturing rose by 34.1 percent or 3.4 percent annually from 2000 to 2010. Employment reached a peak of 2,620 jobs in 2014, gaining around 100 jobs. But a change in industry code cost dairy product manufacturing about 500 jobs in 2015. Employment rose to around 2,330 in 2016, an increase of 6.6 percent.
In 2016, Oregon dairy product manufacturing, which includes dairy products (excluding frozen) and ice cream and frozen desserts, averaged 480 jobs and 1,850, respectively.
Dairy product manufacturing payroll grew to $120.9 million in 2016, an increase of $6.5 million or 5.7 percent over 2015. Ice cream and frozen dessert manufacturing wages averaged $42,462 in 2016. Dairy product manufacturing (excluding frozen) enjoyed much higher average wages, at $54,411.
Oregon’s manufacturing industry paid an average $67,436 in 2016 – although food manufacturing paid less, at $40,453. Scooped or poured, dairy manufacturing paid above average wages when compared with the food manufacturing industry group.
Americans Drinking Less Milk but Consuming More Dairy Products
Data from USDA show that per capita fluid milk consumption in the United States steadily declined between 1975 and 2015. Per capita milk consumption fell to 155 pounds in 2015, about 37 percent less than 1975’s 247 pounds. Why the decline? Competition from other beverages, including carbonated soft drinks. Despite the steady decline in fluid milk consumption, dairy products as a whole have generally enjoyed steady growth, led by consumption of yogurt and cheese in particular. Between 1975 and 2015, average annual cheese consumption rose by 146 percent from 14.3 pounds per person to nearly 35.1 pounds. In 2016, milk and cheese manufacturing employed 79 percent of dairy manufacturing workers in Oregon, so the consumption trends of these two products are very important to Oregon’s dairy industry.
Cheddar cheese consumption per capita increased 75 percent between 1970 and 2015, from a little less than six pounds per person to just over 10 pounds. Mozzarella cheese consumption per capita surpassed cheddar in 2007 and its popularity continued to grow. Back in 1970 mozzarella cheese consumption averaged just 1.19 pounds per capita. By 2015 mozzarella cheese consumption grew to 11.27 pounds per capita. Could pizza be the reason? Based on consumption trends, there’s good reason to believe cheese producers, and the dairies that provide them with milk, will continue to see growth in the future.
Processed cheese and cheese content consumption reached a plateau in 1996 but these products have enjoyed resurgence in recent years, regaining some of that 90s luster. In 1996, Americans consumed nearly 8.8 pounds of processed cheese per capita. Processed cheese consumption fell during the Great Recession bottoming out at 6.36 pounds per capita in 2013. Consumption of processed cheese bounced back to 7.35 pounds per capita in 2014, holding steady in 2015. Cheese content products followed a similar consumption trend, bottoming out in 2013 and then rebounding in 2014. Taken as a whole, processed cheese product consumption per capita remains about 2.6 pounds below its grunge-era glory-days.
Dairy Farming – Employment and Payroll
Dairy farms set an employment record in 2016, with about 1,615 covered jobs (covered by Oregon’s unemployment insurance system). Over the past 16 years (going back to 2000), dairy farm employment grew by just over 700 jobs or about 80 percent. Oregon dairy farms averaged about 12 jobs in 2016, with 132 employer units.
From a regional perspective, the Willamette Valley dominated dairy employment back in 2000, with 533 jobs or nearly 60 percent of Oregon’s total. The Willamette Valley hit its peak employment level in 2008, with just over 700 jobs. Over time, a more balanced regional employment picture emerged, with the Willamette Valley holding 600 jobs or 37 percent of the state total in 2016. The Coastal district increased its dairy employment from 215 jobs in 2000 to 510 jobs in 2016, more than doubling its total. The Coastal district also increased its share of Oregon dairy employment, rising to 32 percent in 2016. The balance of state represented just 17 percent of Oregon’s dairy farm employment in 2000 with about 150 jobs. By 2016 the balance of state region provided just over 500 dairy jobs or 31 percent of Oregon’s total. More significant, the balance of state region accounted for half of Oregon’s dairy farm employment growth since 2000. The Coastal region also contributed significantly to dairy employment, representing 41 percent of Oregon’s growth since 2000.
Along with new jobs, dairy industry payrolls grew to $59.2 million in 2016 and average pay rose to $36,656. Dairy industry workers in the Willamette Valley district earned just above Oregon’s average pay, at $37,573. The Costal district paid an average of $33,121 in 2016, below Oregon’s average, while the balance of state rose to the top, averaging $39,169.
Fewer but Larger Dairy Farms
Historically in the U.S., small, family-owned dairy farms with less than 100 cattle led milk production. Since the 1970s, large farms with over 1,000 cattle have become much more commonplace, displacing or purchasing smaller farms. Large farms are able to produce milk at a lower cost than smaller farms. As a result, productivity in the industry has risen, putting downward pressure on dairy prices. This is great for consumers, but difficult for small farms that face tough competition from larger farms.
The trend toward larger farms intensified in the 1990s. According to the USDA, in 1992, about half of all dairy cows were on dairy farms with fewer than 100 head, approximately 135,000. By 2006, there were about 58,000 dairy farms left with fewer than 100 cows, accounting for less than 25 percent of the U.S. dairy herd.
The average size of an Oregon dairy mirrored that of the U.S. between 1974 and 2002. In 1974, Oregon dairy farms averaged 21 cows with about 88,000 head and over 4,200 farms. By 2002, the average Oregon dairy reached 103 cows. The U.S. average in 2002 was similar at 99 cows per farm. But things changed significantly in Oregon between 2002 and 2007. In only five years, the number of dairy farms in Oregon fell by nearly half, from 1,133 in 2002 to 596 in 2007. Meanwhile, the number of milk cows increased slightly to 116,788, giving Oregon an average of 196 cows per farm; the U.S. average was 133. The average size of an Oregon dairy nearly doubled in the five years between 2002 and 2007, with Oregon losing an average of nine dairy farms per month.
The size of Oregon’s dairy herd continued to grow and, according to the more recent Census of Agriculture, reached 125,767 cows in 2012. And in a reversal of trends, the number of Oregon dairy farms also grew, climbing to 686, an increase of 90 farms or 15 percent. In 2012, the average Oregon dairy herd included 183 head, a slight drop from 2007’s 196 cows. U.S. dairy herds continued to rise, however, to average 144 head in 2012 – although still well below Oregon’s 183.
One dairy community that has tried to maintain its identity as a small farm community is Tillamook. Even so, there are fewer farms today than there used to be. Richard Obrist, Tillamook dairy farmer and member of the Oregon Dairy Farmers’ Association, said the Tillamook County Creamery Association (TCCA) used to have over 500 members in the 1950s. “In the past, family farms were passed down from generation to generation,” said Obrist. “If there wasn’t a family member to take on the farm, many of those farmers retired when they could no longer operate the farm.”
Obrist said the cooperative structure of the TCCA has been crucial to the survival and success of small farms in Tillamook. “If it wasn’t in place, the farmer would not only have to run the farm, they’d be responsible for marketing and selling the product,” states Obrist. “The co-op also does a great job of working with the farmers to help them overcome issues that affect the quality of their milk.” Today the farmer-owned co-op includes nearly 100 farmer families with many farming in Tillamook County for multiple generations. The TCCA celebrated its 105th anniversary in 2014, making dairy products for over a century.
In Boardman, the face of dairy looks a little different. Boardman is located in Morrow County along the Columbia River. In 2001, the TCCA built a new cheese factory in Boardman. Tillamook area farmers couldn’t keep up with the TCCA’s demand for milk, so another source was critical to the expansion of the creamery. Unlike the home factory in Tillamook, the Boardman plant does not depend on lots of small farms to supply it milk. It depends on larger ones like Threemile Canyon Farms. Threemile Canyon Farms is a mega dairy with 93,000 acres of land in ownership and 24,000 dairy cows. The cows produce more than 1.4 million pounds of milk each day – about 165,000 gallons or 20 milk tankers – each day. This is one example of the trend toward larger farms in the dairy industry. Lost Valley Farm, recently approved by the Oregon Department of Agriculture and Department of Environmental Quality in early 2017, will add 30,000 cows on 7,288 acres near Boardman.
Despite tough times during the Great Recession, the dairy industry in Oregon is moving forward. Milk prices stabilized in early 2017 following several years of volatile prices. The economy has improved and demand is growing. The number of dairy farms, dairy cattle and dairy employment continue to rise, fueled in part by mega dairies. While there aren’t as many dairy farmers as there were in 2002, the number of dairies did grow following the recession.
Dairy manufacturers continue to produce high quality dairy products, from the award winning bleu cheeses of Rogue Creamery to the fresh, delicious milk at your local grocery store. They also provide good paying jobs throughout the state, in urban and rural areas.