Oregon Dairy Production Stalls as Milk Prices FallAugust 30, 2018 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 or 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. Milk production fell by 2.5 percent in 2017 to 2,529 million pounds although sales rose by 6.7 percent or $31.1 million to total $496.6 million.
Volatile Milk Prices
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. Milk prices rebounded somewhat in 2017, rising to $19.80 per 100 pounds, producing a gap of -$5.90, 23 percent below its 2014 peak. Milk prices through the first six months of 2018 averaged $18.40, a loss off $1.40 per 100 pounds or 7.1 percent compared with 2017.
U.S. Dairy Export Trade Data
According to the U.S. Dairy Export Council, U.S. Dairy exports totaled $5.5 billion in 2017, an increase of 14.6 percent from the prior year but significantly below 2014 which brought in a record $7.2 billion. Milk exports represented 14.7 percent of total U.S. production in 2017, a slight increase over 2016 (14.2%).
Through the first four months of 2018, U.S. dairy exports (excluding fluid milk) rose by 22 percent over January – April 2017. Values climbed by seven percent to $1.9 billion. April export values alone reached a record $518.4 million.
Nonfat dry milk/skim milk powder is typically consumed elsewhere, with 86 percent of U.S. production in the first four moths of 2018 exported. Whey and lactose products are likewise a mainstay for trade markets with 71 percent of U.S. lactose production and 44 percent of dry sweet whey exported. A much smaller share of total U.S. cheese production, 5.7 percent, found its way to export markets in the first four months of 2018. Based on volume, total whey exports were up by 17 percent over the year, nonfat dry milk/skim milk power exports increased by 27 percent and cheese shipments rose by 14 percent.
Dairy Product Manufacturing in Oregon
Dairy product manufacturers add value to dairy farm production – processing raw milk into fluid milk, 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, then dropped slightly in 2017 to 2,290, down 1.7 percent.
Oregon dairy product manufacturing includes dairy products (excluding frozen), which average 1,810 jobs in 2017 and ice cream and frozen desserts, which averaged 480.
Dairy product manufacturing payroll grew to $121.1 million in 2017, an increase of $1.2 million or one percent over 2016. Ice cream and frozen dessert manufacturing wages averaged $44,666 in 2017. Dairy product manufacturing (excluding frozen) enjoyed much higher average wages, at $55,647.
Oregon’s manufacturing industry paid an average $68,152 in 2017 – although food manufacturing paid less, at $42,828. 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 2016. Per capita milk consumption fell to 154 pounds in 2016, about 38 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 2016, average annual cheese consumption rose by 157 percent from 14.3 pounds per person to 36.6 pounds. Dairy product manufacturing (except frozen) provided close to 80 percent of Oregon’s dairy manufacturing jobs in 2017, so the consumption trends of milk and cheese are very important.
Cheddar cheese consumption per capita increased 79 percent between 1970 and 2016, from a little less than six pounds per person to 10.4 pounds. Mozzarella cheese consumption per capita surpassed cheddar in 2007 and its popularity has continued to grow. Back in 1970 mozzarella cheese consumption averaged just 1.19 pounds per capita. By 2016 mozzarella cheese consumption grew to 11.7 pounds per capita. 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 other cheese product 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 and other chees products per capita. Processed cheese and other cheese product consumption fell during the Great Recession bottoming out at 6.4 pounds per capita in 2013. Consumption bounced back to more than 7.3 pounds per capita in 2014 and 2015, while falling to about 7.0 in 2016. Processed cheese and other cheese product consumption per capita remains about 1.8 pounds below its grunge-era glory-days.
Dairy Farming in Oregon – Employment and Payroll
Dairy farm employment held held steady in 2017, with just over 1,600 covered jobs (covered by Oregon’s unemployment insurance system), matching its 2016 peak. Over the past 17 years (going back to 2000), dairy farm employment grew by just over 700 jobs or about 80 percent. Oregon dairy farms averaged about 13 jobs in 2016, with 125 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 590 jobs or 36 percent of the state total in 2017. 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 33 percent in 2017. The balance of state represented just 17 percent of Oregon’s dairy farm employment in 2000 with about 150 jobs. By 2017 the balance of state region provided nearly 500 dairy jobs or 31 percent of Oregon’s total. More significant, the balance of state region accounted for nearly half of Oregon’s dairy farm employment growth since 2000. The Coastal region also contributed significantly to dairy employment, representing 44 percent of Oregon’s growth since 2000.
Along with new jobs, dairy industry payrolls grew to $61.7 million in 2017 and average pay rose to $38,201. Dairy industry workers in the Willamette Valley district earned just above Oregon’s average pay, at $38,977. The Costal district paid an average of $33,656 in 2017, below Oregon’s average, while the balance of state rose to the top, averaging $42,200.
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. The average size of an Oregon dairy nearly doubled in the five years between 2002 and 2007. 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.
Grade A Oregon licensed dairies, which exclude non-commercial dairies, raw milk producers and other animal milk producers (i.e. goats), highlight the trend of dairy industry consolidation. Back in 1990, there were 520 Grade A dairy farms operating in Oregon, by 1997 the total had fallen to 363, a drop of 30 percent. Over the next decade, the number of Grade A dairy farms operating in Oregon fell to 289, a loss of about 20 percent or one-in-five daries. And ten years later, in 2017, the number of Grade A dairy farms operating in Oregon fell to just 228, a 21 percent decline since 2007.
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, including Threemile Canyon Farms.
Milk prices remain volatile despite a short-lived increase in 2017. Price trends turned negative again in 2018 despite a growing U.S. economy and record low unemployment. Dairy farm employment in Oregon held steady in 2017, while dairy product manufacturing remains below its 2014 peak. There are fewer Grade A dairy farms operating in Oregon today – but milk production has increased with the emergence of mega daries.
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.