Dairy farmers’ cost to haul milk within the Upper Midwest jumped 21% when comparing May 2021 to May 2022. Using a simple average, the cost to move milk from farm to plant shifted from 51 cents per hundredweight (cwt.) in May 2021 to 62 cents per cwt. in May 2022.

While those costs may raise eyeballs, it could have been even worse for farmers as diesel fuel shot to the moon during that time span, jumping by $2.16 per gallon ($3.16 versus $5.32 per gallon). That represented a 68% price escalation for fuel.

Those are among the many findings in Corey Freije’s paper, “Milk Hauling Charges in the Upper Midwest Marketing Area.” Those pricing realities only consider the simple average to haul milk. The weighted average was a lower reported figure as 80% of the milk delivered to plants in the Upper Midwest Federal Milk Marketing Order comes from just two states — Wisconsin and Minnesota. With that in mind, the weighted average to haul milk moved from 32 cents in May 2021 to 42 cents in May 2022.

While those weighted hauling prices may be lower than the aforementioned 51 and 62 cents, the 31% move was even higher than the simple average movement of 21%.

Flat fees prevail

In this analysis, Freije poured over information from 9,736 dairy producers.

“The Federal Order 30 Market Administrator’s producer database allows options for handlers to report a line-item fee for hauling that can include, but is not limited to, stop charges, fuel charges, or a flat fee,” shared Frieje in his paper. “Some handlers will do a combination of charges necessitating some calculations to arrive at a total hauling charge from the database.

“A flat fee structure leads to decreasing average hauling charge when viewed on a per hundredweight basis,” continued Frieje. “The possibility also exists that the hauling charge relationship for large producers may differ on a handler-by-handler basis. This relationship may mean the producer pays all charges external to the handler’s payroll,” wrote Frieje. “Previous analysis has indicated that hauling charges are a function of producer pounds, the farm’s distance to plants, the farm’s distance to population centers, competition among handlers, and the concentration of dairy farms in the local market.”

Lower costs in two states

With its 6,090 farms anchoring the order, Wisconsin has the lowest shipping costs no matter what the scale. On simple average when considering all Badger State farms, hauling charges averaged 53 cents per cwt. When using a weighted average that considers the costs based on the entire volume of milk, hauling charges drop to 37 cents per cwt.

Minnesota nearly matched those numbers at 53 cents per cwt. (simple average) and 41 cents per cwt. (weighted average).

The costs in the other states on a cwt. basis were:

  • South Dakota: simple average 79 cents; weighted average 45 cents
  • Iowa: simple average 77 cents; weighted average 54 cents
  • Illinois: simple average 95 cents; weighted average 76 cents
  • Michigan Upper Peninsula: simple average $1.19; weighted average 75 cents
  • North Dakota: simple average $1.45; weighted average 82 cents

Simple averages and weighted averages are easier to understand when looking at milk shipped based on a farm’s production level. “Skewness dominates the results with nearly 65% of the milk produced by 10% of the farms,” wrote Frieje. “In addition, these largest categories of farms pay 57% of the total hauling charges.”

Because these larger farms are spreading hauling charges over more hundredweights, especially considering flat fees that come into the picture, hauling charges per hundredweight go down as production levels climb higher.

For example, herds shipping between 1 million and over 5 million pounds of milk in a month has hauling costs range from 36 to 42 cents per cwt. on a weighted average (35 to 43 cents on a simple average). Meanwhile, herds sending between 100,000 to 1 million pounds of milk ranged from 46 to 50 cents per cwt. on both the weighted and simple scale.

There’s not much difference in the simple and weighted averages.

However, it was the 3,859 herds that shipped from 1 to 100,000 pounds of milk per month that had the highest costs with a 55 to 82 cents per cwt. weighted average (56 to 93 cents per cwt. on a simple average).

A little math can help better understand what it takes to ship 100,000 pounds per month. The average U.S. cow produces 24,000 pounds annually. On a daily basis, that equates to 65 pounds per day. Using those averages, a 50-cow dairy would ship 97,500 pounds of milk each month and a 100-cow dairy would ship 195,000 pounds.

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(c) Hoard's Dairyman Intel 2023
May 15, 2023

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