CNAS Overview:

New Mexico Overview: Agriculture continues to be a major contributor to the State's economy with the livestock industry accounting for approximately 70% of the agricultural cash receipts. Cattle sales and milk receipts dominate the livestock cash receipts. Sale of Milk is an important source of agricultural income in New Mexico and ranks either first or second with sales of cattle and calves as the leading agricultural commodity. The 2003 gross income increased 6 percent to $790 million. For the second straight year, milk has been ranked New Mexico's number one cash commodity.

The state dairy industry continued its growth pattern with milk cow numbers increasing as well as milk production reaching higher levels. The number of milk cows during the year averaged 317,000 head, up 5.3 percent from 2002. Milk production set another record high at 6.7 billion pounds, up 5.5 percent from a year earlier when 6.3 billion pounds were produced. Milk production per cow, at 21,028 pounds, was up 45 pounds from last year. Among the 20 major milk producing states, New Mexico ranked fifth in milk production per cow and seventh in total milk production.

Ag in New Mexico

U.S. Dairy Background

Farm milk production

Major trends in milk production in the United States include 1) a fairly steady slow increase in production as increases in milk production per cow outweighed declines in the number of cows, and 2) a consistent decline in the number of dairy operations matched by a continual rise in the number of cows per operation. Since 1970, milk production has risen by almost half, even though milk cow numbers have declined by about one fourth (from about 12 million to roughly 9 million in the early 2000s). Milk production per cow nearly doubled, from 9,700 pounds per year to nearly 19,000 pounds. Similarly, the number of dairy operations declined from about 650,000 in 1970 to roughly 90,000 in the early 2000s, while over the same time period the average herd size increased fivefold from about 20 cows to 100 cows.

Milk is produced in all 50 States, with total annual production currently around 170 billion pounds of milk. New Mexico is now seventh in milk production in the United States. The top 10 producing States during 2003 and 2004 have been:

  • California
  • Wisconsin
  • New York
  • Pennsylvania
  • Idaho
  • Minnesota
  • New Mexico
  • Michigan
  • Texas
  • Washington

As this list indicates, major milk-producing States are widely scattered across the West and North. The relative importance of the western regions has grown while other regions have declined or remained steady. Western areas have had lower average costs of milk production for a variety of organizational and climatic reasons.

Most dairy cows in the United States are Holsteins, a breed that tends to produce more milk per cow than other breeds. The composition of Holstein milk in approximate terms is 87.7 percent water, 3.7 percent milkfat, and 8.6 percent skim solids.

The decision to produce milk largely rests in the hands of individuals or families in the United States. These farmers typically belong to producer-owned cooperatives. The cooperatives assemble members' milk and move it to processors and manufacturers. Some cooperatives operate their own processing and manufacturing plants. Initially local, many of today's dairy cooperatives are national, with members scattered across the country.

From raw milk to dairy products

Almost all of the milk produced in the United States now meets fluid grade milk standards (Grade A in most States). However, only about one-third of the milk is actually processed into fluid milk and cream products.

Fluid milk processors face a unique supply-demand situation not associated with most other food products. Farm milk production varies by day, week, and season because of weather and feed conditions. Similarly, fluid milk sales vary greatly by day and season because of consumer shopping patterns. Because these swings cannot be precisely predicted, a system must be maintained to get milk where it is needed when it is needed. Shipping milk among locations and storing it for a day or two can handle some of the problem, but a pool of "on call" raw milk ultimately is needed. The part of this reserve not actually used as fluid milk is manufactured into dairy products.

Coordinating supply and demand for the fluid market is called balancing. Individual plants may do the balancing, but it is more efficient for a few entities or even a single entity to provide the services for a market. Dairy cooperatives have in most cases taken on this important function.

The remaining almost two-thirds of the milk supply is used to manufacture a great diversity of dairy products. Almost half of the milk supply is used to turn out about 9 billion pounds of cheese each year. Mozzarella has recently moved past Cheddar to become the most popular variety. Output of most varieties has grown steadily for many years, as cheese has become a staple in the American diet.

Production of ice cream and other frozen dairy products totals about 1.5 billion gallons, about two-thirds of which is regular ice cream. Frozen dairy products are commonly made by fluid milk processors, although specialized plants are well established.

Butter and nonfat dry milk traditionally were joint products. The cream from the milk was churned for butter, and the remaining skim milk was dried for nonfat dry milk. About a tenth of the milk supply is still used this way, although more than half of the butter now made comes from cream not needed when milk is used for fluid milk or cheese. Production of these products has been roughly constant for many years, although their relative share of dairy product output has declined.

The plants that process and manufacture milk into fluid and manufactured dairy products may be proprietary (held by private or publicly traded companies) or cooperatively owned. An example of a proprietary company is Leprino, the largest global producer of Mozzarella cheese. Cooperatives generally produce cheese, butter, nonfat dry milk, and other such manufactured products, but some cooperatives, such as Prairie Farms, Inc., process fluid milk. Regardless of the company's business structure, there is a relatively significant presence of foreign-owned companies in parts of the U.S. dairy industry.


Consumption of total dairy products in recent decades has risen just barely faster than the growth in population. However, use of individual products showed great, and apparently unrelated, variation. Consumer decisions about individual products appear to be fairly independent of each other.

Demand for milkfat in all dairy products has grown less than for skim milk solids. Even so, some of the fastest-growing products (fluid cream and cheese, for example) are made from cream or whole milk, while some of the declining products (cottage cheese and nonfat dry milk) are made mostly from skim milk.

Total per capita consumption of fluid milk has declined slowly because of competition from other beverages and a declining share of children in the population. Since the late 1980s, however, changes in per capita sales of individual types of beverage milk have been erratic. Per person use of most cream and cultured products has risen steadily for a quarter century.

Growing cheese demand has been one of the most important forces shaping the dairy industry. Per capita cheese use is twice the level of 25 years ago and shows no signs of leveling. Cheese consumption has been helped by the common availability of a wider variety of cheeses, increased away-from-home eating, and greater popularity of ethnic cooking using a lot of cheese (such as Italian and Mexican).

Per person use of butter has been fairly steady since the early 1970s. However, use of most dry and condensed milks have declined as in-home food preparation has diminished and fresh milk has become cheaper and developed a longer shelf-life. In commercial food preparation, whey products have replaced some of the former uses of dry and condensed milk products.

Market Outlook

Dairy: market outlook
ERS has the lead role in USDA's short-run and long-run dairy market outlook activities. Monthly and quarterly dairy industry data and dairy market outlook are provided in the Livestock, Dairy and Poultry Situation and Outlook report, a monthly ERS report. Estimates of milk supply, use, and prices are also reported in the monthly World Agricultural Supply and Demand Estimates (WASDE) report of the World Agricultural Outlook Board (WAOB). The WASDE estimates are developed by a committee of dairy analysts from ERS, the Agricultural Marketing Service (AMS), Farm Service Agency (FSA), and Foreign Agricultural Service (FAS). The Agricultural Baseline Projections reports provide long-run dairy industry projections


Dairy policy in the United States includes both Federal and State programs. The two major Federal dairy programs are the system of federal milk marketing orders and the milk price support program. Government programs designed to assist international trade (see below) and provide domestic and international food aid also affect the dairy industry.

Price support programs

The current purchase program for supporting farm milk prices started with the Agricultural Act of 1949 and has been modestly modified several times since then. The Commodity Credit Corporation (CCC) will buy any butter, Cheddar cheese, or nonfat dry milk that meets specifications and that is offered to it at current support purchase prices. The support purchase prices for each of the three products are set to ensure that plants of average efficiency can pay to producers, on average, a manufacturing milk price that is at least the milk support price, which is $9.90 per hundred pounds (cwt). Under the 1996 Farm Act, the purchase/price support program was to have ended on December 31, 1999, but was twice extended for 1 year (to the end of 2000 and then 2001), with a support price of $9.90 per cwt. The Farm Security and Rural Investment Act of 2002 (2002 Farm Act) continues the milk price support program through 2007. The support price remains at $9.90 per cwt, and CCC continues to have authority to adjust relative purchase prices of butter, Cheddar cheese, and nonfat dry milk twice during each calendar year.

The Dairy Export Incentive Program (DEIP) pays cash bonuses that allow dairy product exporters to buy at U.S. prices and sell abroad at prevailing (lower) international prices. DEIP removes nonfat dry milk, butterfat, and certain cheeses from the domestic market, helps develop export markets, and has played an important part in milk price support since the 1990 Farm Act. As a member of the World Trade Organization (WTO), the United States is committed to reducing subsidized exports, in both quantity and budgetary expenditure terms. This does not preclude the use of DEIP. In fact, the Secretary of Agriculture is directed to use the program to the maximum extent allowable under WTO commitments.

National Dairy Market Loss Payments

A new program for direct counter-cyclical payments to milk producers is legislated in the 2002 Farm Act. Eligible producers can receive a monthly payment calculated as 45 percent of the difference between $16.94 per cwt and the monthly Class I price in Boston announced under Federal Milk Marketing Order 1 multiplied by their monthly "eligible milk production marketed." The payment for a single farm is made only on eligible production, up to 2.4 million pounds per fiscal year. Producers may not reorganize dairy operations for the sole purpose of receiving additional payments. This program covers eligible milk production from December 1, 2001 to September 30, 2005.

Fluid milk marketing

Federal milk marketing orders were first authorized by the Agricultural Marketing Agreement Act of 1937 and have been modified many times since then. These orders are intended to help establish orderly marketing conditions for the benefit of both milk producers and dairy product consumers. A classified pricing system and revenue pooling are the two key elements of milk marketing orders. The milk marketing orders define the relationship among prices of fluid and manufactured dairy products and a geographic price structure, sometimes called the price surface.

The 1996 Farm Act called for consolidation and reform of Federal milk marketing orders. The reforms implemented January 1, 2000, established 11 federal milk marketing orders (reduced from 33 in 1996), put new methods for determining class prices into effect, and made some of the language of the orders more uniform. The Western Federal milk marketing order disbanded as of April 1, 2004, leaving 10 Federal milk marketing orders in operation.

The 2002 Farm Act does not alter the marketing order system. Not all areas of the country are covered by federal milk marketing orders. California, the top milk producing State, has its own milk marketing program.

For more information on price support, DEIP, and marketing orders, see Milk Pricing in the United States.


International dairy trade absorbs only about 5 percent of the cow's milk produced globally. The trade is primarily in major manufactured dairy products—butter, cheese, and dry milk powders—with some trade in fluid milk products, ice cream, yogurt, and dry whey products. The United States has not been a major sustained exporter of dairy products. There have been sporadic unsubsidized exports of butter and nonfat dry milk powder, but more often some subsidy has been required. The United States is an important importer of relatively large (although mostly fixed) amounts of cheese.

Until the conclusion of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), the United States employed rigid dairy product import quotas to shield our milk price support program from the international dairy market. As a member of the World Trade Organization, the United States moved to so-called tariff rate quotas (TRQs) for dairy products. The TRQs allow imports at very low tariffs up to fixed amounts. Any additional imports are subject to very high tariffs. Many of the individual TRQs are administered through licenses for imports of specific products from specific countries or regions.