Tag Archives: Calvin Covington

What’s on Covington’s 5-year milk market radar?

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Pennsylvania dairy producers were treated to a forward look at Calvin Covington’s milk market radar during R&J Dairy Consulting’s annual seminar. The bottom line is cheese, cheese, and more whey. Photo by Sherry Bunting

Cheese and whey, will continue driving bus, with big growth in processing capacity on the road ahead

By Sherry Bunting, Farmshine, Feb. 7, 2025

EAST EARL, Pa. – Looking at the milk markets for 2025, Calvin Covington sees farm-level milk prices in the Northeast averaging 25 to 75 cents per hundredweight higher this year. He said milk margins, nationally, averaged $11.86 for the first 11 months of 2024, and he expects similar good margins to prevail in 2025.

The caveat? These are forecasted averages, and farmers should expect price volatility in their income and input costs, along with the mixed bag of positive, negative, and unknown impacts from the Federal Milk Marketing Order changes implemented in the second half of the year. He expects butterfat prices to remain good, but lower in 2025; whey prices will be higher, but more volatile; and protein may be lower as huge new cheese processing capacity comes online

Covington mostly shared what’s on his radar for the next 3 to 5 years during R&J Dairy Consulting’s 18th Annual Dairy Seminar, attended by more than 250 farmers at Shady Maple Smorgasbord in eastern Lancaster County, Pennsylvania on Jan. 28th.

He remarked about the number of young farmers in the crowd, and pointed out that Lancaster County is the consummate dairy county in the U.S. — with more than 1100 Grade A dairies, producing over 2 billion pounds of milk last year, which is 4.5% of total U.S. output and more milk than half of the state totals across the nation.

Consumers: more cheese, more fat, more solids

“Cheese is driving the dairy industry, and consumers are consuming more milkfat. That’s what makes stuff taste good,” he said. “Cheese is one-third fat, and that’s one reason why milkfat consumption is growing.”

He also showed how increased fat consumption is demonstrated in fluid milk sales, with “whole milk coming up.”

This trend toward consuming products with more solids is also evident in ice cream sales, which are down, but the fat content is up; and in yogurt sales, which are flat, but move “more milk in the yogurt” in the form of more solids.

Now retired, Covington, a previous National Dairy Shrine Guest of Honor and World Dairy Expo Person of the Year, spent over 50 years working for dairy farmer organizations, including as a DHIA milk tester, CEO of American Jersey Cattle Breeders Association, and CEO of Southeast Milk Inc.

He said the total solids growth in the dairy sales is expected to continue, up from 27 billion pounds total a decade ago to 31 billion pounds in 2024.

The caveat, he said, is that “exports peaked a couple years ago at 17% of total milk solids, and last year (2024) was down at 16%. Exports are a big part of your market, but they have started to level off.”

When asked about imports, Covington said “they keep going up, especially on butterfat” as the U.S. now imports almost as much milkfat as it exports.

He noted increased consumer demand for Irish butter, which is made differently than U.S. butter, with more butterfat. “I hope we start making better-tasting butter in the U.S. instead of importing it,” he shared.

Amid the demand for milk solids, Covington said “it’s amazing what you are doing with your milk components as dairy farmers.” In the Northeast, producers are averaging 4.21 fat and 3.29 protein due to genetics and “the job farmers are doing with their nutritionists and feed companies.”

Covington demonstrated with 2023 vs. 2024 comparisons that farmers are increasing the amount of products made by increasing components year over year, instead of milk production and cow numbers.

Components are the big story on the supply side, a trend he also sees continuing. He doesn’t expect dairy cow numbers nor milk output per cow to go back to the year-over-year gains seen in the past any time soon.

With a chart he showed the stark 2024 vs. 2023 data: Cow numbers are down 47,000 head; replacement heifers sell for $600 more per head; average milk output per cow is flat; but average fat pounds per cow is up 2.7% and average protein pounds per cow up 1.2%. This means that even though total U.S. milk production at an estimated 225.9 billion pounds is down 0.2% from year-earlier, total fat pounds at 9.508 billion pounds are up 2.2%, and protein pounds at 7.431 billion pounds up 0.7%.

“You’re doing it with your components,” he said. “And that’s going to continue.”

Cheese (or maybe whey) is driving the bus

Putting aside the import and export caveats, Covington demonstrated that as the overall dairy market is growing, almost all of this growth has been in the cheese market, which has become a much bigger piece of the much bigger pie.

“Cheese has been driving the dairy industry for several years, and everything points to it driving the industry going forward,” he said, showing a chart of the product mix in the year 2000 when 167.4 billion pounds of milk was produced in the U.S., sold as half cheese, and one-third fluid milk, with 15% other products. This compares with 2024, when 225.9 billion pounds of milk was produced and 58% of the sales were in cheese, 20% fluid milk, and 22% other products.

Per capita trends also show “consumers are eating more of their milk instead of drinking it,” said Covington. “We have seen tremendous change since 1986, when consumers first started consuming more of their milk as cheese than as fluid milk. Look at 2023, people consumed 405 pounds of milk (equivalent) in the form of cheese and 128 pounds in the form of fluid milk.”

While home milk delivery is rare today, Covington said it happens now in the form of pizza.

“If I drive around the city on a Friday night, I’ve got to get out of the way of the pizza delivery people. I figure, on average, it takes a little over a gallon of milk to make one average size pizza. Just think how much home delivery we have today of milk, but in the form of something else, not the milkman dropping off half gallons,” he said.

“The market is changing, and it’s going to keep on changing.”

Why is cheese growing so much? Covington pointed to things he hopes are lessons for other products: 1) Convenience, innovation in packaging and varieties, with pizza accounting for 42% of all cheese; 2) Brand identity, there’s still a lot of this in cheese, not making it a commodity to try to get to the lowest price like in other dairy products (i.e. fluid milk); and 3) taste, people love cheese.

Big bets on the future

Big bets are being made for more cheese growth, and the revenue stream of whey ‘byproduct.’

“We are in a slurry right now of a pile of money being spent on new plant construction,” said  Covington, listing the states of Kansas, Texas, South Dakota, Minnesota, Wisconsin and New York. 

When all of this new construction is complete over the next year or so, Covington expects the need for 30 million pounds of milk a day to fill the new plants or expansions, which he estimates represent investments of at least $5 billion and are owned by private companies or groups of farmers or individual farms that are not cooperatives.

“This kind of money and growth is not being put out there unless there is confidence in getting a return on investment with cheese and whey product growth both domestically and internationally,” he pointed out.

New cheese plant construction, when completed over the next year or so will take in more than 30 billion pounds of milk a day, and they gain a lot of additional revenue from what they do with the whey that smaller traditional cheese plants don’t have the equipment to do.

These new plants making all of this cheese will also have a lot of whey.

He explained that small plants get about $1.00/cwt for the whey cream and have the liquid whey to do something with. Some plants might dry it and get $3 per cwt for the dry whey plus the $1 for the whey cream, so that’s $4/cwt.

“Small traditional cheese plants can’t afford the equipment to do what some of these new plants are doing. These new companies not only dry the whey, they fractionate it to make whey protein concentrates. They separate out the lactose for whey protein isolates,” Covington said, rattling off a few items on the expanding list for everything from snacks and beverages, to pharmaceuticals and cosmetics, to milk replacers, to counter-top items, ‘pizza cheese,’ artificial seafood, canned hams, and more.

“It’s just amazing, and it brings in more revenue. When we think about cheese, it’s more than just the cheese, it’s also the income from the whey that’s left over,” he said, adding that the CEO of a large cheese company once told him: “Sometimes I think the cheese is the byproduct.”

With this kind of investment, the new plants are going to be making big volumes and getting income from the whey.

“This puts a crimp on the small cheese plants that can’t do this, and they’re going to have to get it out of the cheese end,” Covington observed, suggesting some potential structural change on the cheese side of the dairy industry with significant domestic and international sales growth needed to stay a step ahead.

On the positive side of the fluid milk industry, in addition to growing whole milk sales, Covington highlighted new investments. He sees a future with more dominance by grocery stores, pointing out the two new Walmart plants going into Georgia and Texas, which will be the largest in the country, processing 50 to 55 loads of raw milk a day.

Other big investments in the fluid milk sector in the Northeast are ultrafiltration and ESL packaging, such as the new fairlife plant under construction in western New York, new ESL expansion at the former Hood plant owned by Maola, and aseptic shelf-stable milk packaging at Cayuga Milk Ingredients.

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Covington’s Southeast milk market outlook: Higher prices for 2025; higher-fat milk sales also put more money in milk checks

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Calvin Covington gave his dairy market outlook during the Georgia Dairy Conference in Savannah. Photo by Sherry Bunting

By Sherry Bunting, Farmshine, January 24, 2025

SAVANNAH, Ga. – Flat milk production volume, but with higher components, and a more unpredictable demand are factors new to the dairy industry that make price projections more difficult for the year ahead.

Calvin Covington has spent his life in milk marketing, now retired from managing Southeast Milk Inc., and before that working with cheese processors to see (and pay) the value of higher protein and fat when he was with the American Jersey Cattle Association earlier in his career.

Covington gave his dairy outlook for 2025, with emphasis on the Southeast markets during the Georgia Dairy Conference attended by over 400 in Savannah, Jan. 20th.

“I was way low on my projections last year. 2024 ended up with prices higher than anticipated,” he said.

This year, he is projecting prices in the Southeast markets to rise by $1.20 per hundredweight as an average for 2025 vs. 2024 in the Appalachian region ($24.12), $1.40 in Florida ($25.90) and $1.13 in the Southeast Order ($24.60). Most of the increase will come from the skim side this year because the FMMO changes, which will be implemented in the second half of 2025, will pressure butterfat value.

Covington shared his price projections for Southeast milk markets for 2025.

Producers are making higher butterfat milk, averaging well over 4.0% across the three Southeast Orders at 4.06 in Appalachian, 3.92 in Florida, and 4.11 in the Southeast. This compares with 3.65% across the three Orders in 2010.

“Additionally, consumers are also drinking higher fat milk,” said Covington, calculating the average fat percentage of Class I sales in the three Southeast Orders rose from 1.95% in 2010 to 2.4% in 2024.

Covington calculated that fat percentage in milk sales showing the change in consumer preference for higher fat milk puts more money in producer milk checks.

“In 100 pounds of Class I milk in the Appalachian Order, for example, that 2.38% fat made the milk worth more money, $1.38 per cwt more,” he said, with a chart showing Southeast producers saw a $1.28 benefit; Florida $1.35.

“There has been a big change in consumer preference, and that has raised your Class I price,” he said.

He commended dairy producers for improving their components, which has also improved their milk price.

“You’ve done this through genetics and feeding and nutrition programs, and it’s not going to stop. We are moving quickly to Holsteins making milk like Holsteins and testing like Jerseys.”

Other good news heading into 2025 is dairy product inventories are in good shape, he said. Cheese stocks are down, powder is up just a small amount, dry whey inventory is way down and butter inventory is flat.

Dairy product demand is up, but Covington sees a bit of a challenge looking at demand on a total solids basis because “we are exporting more cheese and less powder.”

Looking ahead, he gave attendees a lot to think about on the changing structure and markets in the dairy industry.

Covington observed that 10% (140) of the 1408 dairy farms that were counted in the 2022 Census of Agriculture in the Southeast had 64% of the region’s milk sales.

Of that 140, there were 22 farms with 2500 cows or more, producing 32% of the region’s milk.

“This is happening all over the country,” said Covington. “We are getting more concentrated.”

This year the milk production advantage flipped back to Florida by slightly more than Georgia, but the two states together have reached 50% of Southeast milk sales. Covington thinks by 2030, “we will see 60% of the milk produced in the Southeast coming from Georgia and Florida.”

When asked what has led to Georgia’s rapid increase in production over the past few years, Covington said “Georgia dairy farmers want to expand and they have the ability to expand. They are progressively making more milk per cow and have the land mass and support.”

His “demand and supply” summary for the Southeast region shows 1160 dairy farms at the end of 2024, producing 8 billion pounds of milk with 32 regulated milk plants. The region had 8.3 billion pounds of Class I fluid milk disposition, and 0.9 billion pounds of Class II products processed.

Against those numbers, the amount of packaged fluid milk products sold in the Southeast was 10 billion pounds. “The Southeast is still a deficit area, and there is room for growth,” he said.

As for total U.S. milk production, Covington doesn’t see it rebounding any time soon. Cow numbers are moving lower and milk per cow is simply not making the year over year gains seen in the past.

“Milk production has been pretty constant for the last three years,” he said. “We have to go way back to see where that has happened before.”

But he also wanted producers to think differently about production, to realize that in making more components, their milk is generating more products. He calculates that today’s hundredweights of milk, nationwide, yield a half pound more cheese. That adds up.

“You as dairy farmers are doing this. By getting your components up, you are also improving sustainability over time. You are making more products from the same volume of milk,” Covington explained.

“Based on average component level changes, if a plant is making one million pounds of cheese a day, they now need 177 loads instead of 185 loads a day for that same output,” he said.

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Covington: Southeast blend price forecast $3.50 higher for 2022

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Industry trends explored at Georgia Dairy Conference

Calvin Covington gives Southeast Dairy Outlook at Georgia Dairy Conference in January. S.Bunting photo

By Sherry Bunting, published in Farmshine, Feb. 11, 2022

SAVANNAH, Ga. – “Everything is going up, and quickly. Class IV is driving milk prices, with good demand for both butter and powder, especially for exporting,” said Calvin Covington as he presented the Southeast dairy outlook during the 2022 Georgia Dairy Conference, attended by around 300 dairy producers and industry members in Savannah in January.

He forecast the 2022 Federal Order blend price average (not mailbox price) for the Southeast region will be up $3.50, with most of that increase on higher butterfat, predicted to average $2.54/lb.

Covington’s 2022 blend price projections range from $23.01 in the Appalachian Order 5 and $23.05 in the Southeast Order 7 to $24.81 in Florida Order 6.

He noted that the market beat his conservative 2021 projections by 50 cents to the good. 

“I’m still on the conservative side this year because prices can decrease as quickly as they increase,” Covinton said. “A small change in supply or demand makes a larger change – up or down – in your milk price.”

Covington went through the numbers for 2021, noting reduced milk production, reduced product inventories, reduced Class I sales, a narrowing of the Southeast milk deficit, expanded exports, and expanded domestic demand as trends that are expected to persist into 2022 – especially on the milk production side as supply programs, production cost increases and limits on available labor keep a lid on milk growth nationwide, even worldwide.

Come 2023-24, Covington sees production “jumping up” because of new cheese capacity coming on line in the next two to three years. 

“Texas and the I-29 corridor (Central Plains) are bringing cows to where the plants are growing. We can see this in the production numbers,” he said.

As the milk supply in 2022 is likely to be restrained, Covington looks to the signs that domestic and export demand will continue strong, but questioned how inflation will affect consumer buying power.

The availability and consistency of labor also continues to challenge the dairy supply chain and its customers on the foodservice side.

Be prepared for the unexpected, he cautioned, reminding producers that 2020 was forecast to be a good year, and then the unexpected happened – Coronavirus – so all bets were off.

Exports play bigger role in milk price

“Export demand has become very important to your milk price,” said Covington. “We are seeing the strongest demand yet… and look how dependent the industry is on the export market, sending a record 17.1% of supply overseas — up from 15.8% in 2020.”

Using the available figures for the first 11 months of 2021 to gauge it, Covington said overall export demand is up 11.5% for 2021. Over the past decade, the year over year export demand gains averaged 4.3% by comparison.

Add to this the increase in domestic demand, up 1.4% in 2021, and the net gain in dairy demand for 2021 is more than 3% — almost double the 10-year average year over year demand increase of 1.7%.

Unfortunately, on the fluid milk side, USDA reports sales are down over 4% in 2021 vs. 2020, according to Covington.

“Exports are having a bigger part in your milk price,” he said, noting that global milk production in major dairy exporting countries is flat to lower, pushing global dairy prices higher. “Our prices are well below the world prices, making us very competitive. We’re exporting twice as much butter, and 75% of our nonfat dry milk is being exported.”

That’s positive for the skim price, and the doubling of butterfat exports along with domestic demand push the other side of the fat/skim equation higher.

Milk production trends

Even though 2021 milk production will clock in at around 1% over 2020, Covington honed into the production and cow losses on the back half of the year, using July through November data.

Cow losses at 124,000 head in those five months “are the biggest drop since 2009,” he said.

At the same time, milk per cow had been increasing the first part of the year but flattened in the second half as cost of production caught up to milk prices.

“Production is lower now because of less milk per cow and fewer cows,” said Covington.

Looking at just the back half of 2021, Covington broke the 24 monthly milk reporting states into thirds and showed the geographic shifts (Table 1, above): 8 states were up more than 1% in production, 8 states had reduced production and 8 states were in between.

Significant in the gaining top-third is Georgia, with July through November 2021 production up 3.2% over the same period in 2020.

“Georgia added more cows and increased milk per cow,” said Covington. He said as Florida is losing production, Georgia is gaining and getting closer to Florida.

On the bottom third, the back half 2021 milk production decreases were 4.6% in Florida and 3% in Virginia.

“Florida lost 6000 head and Virginia 3000,” said Covington. “This tells me people are going out of business.”

Looking at the three major milk states of the Southeast region for the year, Covington noted that Florida is down 4.8%, Virginia down 3.3% and Georgia up 1.1%. The other seven states of the Southeast are collectively down about a billion pounds over the past few years.

In the Northeast, Covington’s chart showed New York’s production for those months was up 1.1%, barely putting it in the gaining third, while Pennsylvania’s production was 2.3% lower and Ohio of 1.1%.

In the West, the chart showed Texas up 3.9%, but New Mexico down 9.9%; Wisconsin and Minnesota up 3.2 and 2.7% and Illinois down 1.4%; South Dakota continues as the largest percentage gainer, up 16.7% on the back half of 2021.

“South Dakota tops the list with expansion in cheese capacity,” said Covington. “Cheese expansion is also underway in Texas, and milk production is growing there too.”

Dairy inventories and commodity production are down

Dairy inventories are down. “One of the best barometers for milk prices is looking at inventories, to see if they are building or declining,” said Covington. They are declining with butter inventory down 16%, powder down 21%, whey down almost 9%.

Cheese inventories are up 9.6%, which isn’t bad, according to Covington.

“We’re going into 2022 with really no challenge of inventory,” he said.

On the commodity production side, Covington observed that, “We do not have excess cream. Butter production is lower and powder production is lower. Fluid milk consumption is lower, but the fat percentage is higher, decreasing the cream supply. Demand for other cream products has also been good.”

With cheese production up 1.3% overall, Covington said the real positive here is Italian cheese production up 5.6% is the bulk of the increase. 

“This tells you the product is moving,” he said, “because it’s the fresh cheese production that is higher. They don’t usually make Italian cheese without a sale for it.”

Southeast fluid milk changes

Together, all three southeastern FMMOs had 4.2% less milk going into Class I in 2021. (Table 2, above)

“2021 was a poor year for Class I in the Southeast, but we are comparing to when the food box program was in effect, and that program gave quite a lift to fluid milk in 2020,” said Covington. This loss translates to about one million pounds per day.

Utilization percentage has remained about the same at a little over 72% across the three FMMOs. As Class I sales have declined (4.2%), Southeast production has also declined (3%), so there is little change in utilization percent.

The structure of Class I pool distributing plant ownership has also changed in the Southeast, post-Dean, with 9 of the 44 plants supermarket owned and 19 cooperative owned.

The Southeast region is producing 103 pounds of milk per capita annually, down 20 pounds while fluid milk sales per capita, at 134 pounds, are off by 7 pounds – putting Southeast per capita production 31 pounds below fluid milk per capita consumption.

“The size of the deficit gap is smaller than it was in 2010 due to sales declining more than the production declines over the past decade,” said Covington.

Looking ahead to questions asked about FMMO reform and the Class I mover calculation, Covington said he “would hope we can get back to the ‘higher of’ – realizing what it costs to serve a fluid milk market.”

He shared concern about what happens to orderly marketing when Class I is underpriced vs. the other milk classes.

“Fuel cost estimates are a big concern, and there are other costs,” said Covington. “The cost to serve Class I markets keeps going up. The biggest issue is the FMMO system started when fluid milk was king, and now it is becoming a minority, especially in some areas of the country where processors will wonder, why be in the Federal Order?”

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‘Consumers are smarter than us, they are buying more fat.’

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Covington more optimistic for dairy in 2019

(Above) Calvin Covington is the retired CEO of Southeast Milk, Inc. and formerly with American Jersey Cattle Association and National All Jersey. He has published many articles in Hoards Dairyman and other publications and is respected for his insights on milk marketing. Covington came to Lancaster County, Pennsylvania from his home in North Carolina on Jan. 29 to talk about dairy markets — from the Northeast perspective — at the R&J Dairy Consulting winter dairy meeting. The previous week, Covington spoke at the Georgia Dairy Conference in Savannah, giving the Southeast outlook and perspective there. He also shared with producers that butterfat is driving milk check value because consumers are smart, they are choosing whole milk, butter and full-fat natural cheeses. He urged producers to hold their industry organizations accountable on selling and promoting fat and flavor. He encouraged farmers to focus on pounds of components to improve milk prices at the farm level.

By Sherry Bunting, from Farmshine, February 1, 2019

EAST EARL, Pa. — Bringing a bit of good news, along with good understanding, of dairy markets, Calvin Covington kicked off R&J Dairy Consulting’s winter dairy seminar Tuesday (Jan. 29) talking about what needs to happen for milk prices to improve.

He had the full attention of the 300 dairy producers who gathered at Shady Maple Smorgasbord in East Earl for the meeting, where they learned that Covington anticipates 2019 Federal Order blend prices in the Northeast to improve by $1.00 to $1.50 in 2019 compared with 2018.

“But it’s going to be a walk, not a run. they will move up gradually,” he said. “Last year, I was pessimistic. This year, I am a lot more optimistic.”

Covington also talked about the “4 C’s” that need tochange as the major factors to improve farm level milk prices: Consumption, Cow numbers, Components and Cooperation.

“The most important is consumption,” said Covington. “What is the consumer telling us?”

He showed a graph of how overall dairy consumption has steadily increased on a solids basis from 2000 though 2018, and he displayed a chart (above) showing that the consumer is telling us they want the milkfat — that it’s the solids in the milk — the bufferfat and protein — that give milk value.

“Exports are growing. That’s where most of our growth in demand has been coming from… but we export commodities — milk powder, whey, lactose,” he said. “We export very little butter and cheese.”

While he said exports are of course important to the milk check, he emphasized the need to focus on domestic demand, which has been overlooked and “presents real opportunity. What can we do to lift domestic demand and make that happen?”

In a word, said Covington: “Milkfat. That’s number one. We in the dairy industry need to talk about milkfat and not hide behind it not wanting things to change. Consumers are a whole lot smarter than we are. They are figuring it out. They are buying more fat… and we need to sell thatt.”

He said that the average fat content of all types of fluid milk sales from fat-free to whole milk — nationwide — is 2%.

“If that moved up by just 1/4 to 1/2 of 1 percent, the difference in farmer milk checks would be substantial. Fluid milk sales have been declining (in total), but whole milk sales are up three years in a row,” Covington explained.

“Consumers want that taste, and we’re not talking about it.”

He also pointed out how per capita butter consumption is at its highest point in over 10 years.

“That’s big, and that’s why the butterfat price in your milk check is double the protein price,” said Covington, explaining that in addition to butter, natural cheeses are one-third fat, that we forget about.

“Natural cheese consumption is higher, but it’s the processed cheeses, that contain less fat, that are moving lower,” he said.

He noted that for many years, the research said fat is bad for us.

“Now smart people are showing this to be false and we have books and articles about how butter, cheese and whole milk are good for us.”

Covington noted that what the industry needs to focus on is giving consumers more of what they want and not being afraid to “sell more fat. That will up your milk price,” he pointed out, encouraging producers to focus on pounds of components because this is the majority of how their milk price is determined.

He shared a story about meeting Queen Elizabeth in England with one of the oldest Jersey herds in the world. Those cows produce more than 6% fat, and that’s what she drinks and she’s 92 years old.

He also observed that the Queen knows as much about cows and agriculture as about anyone he’s met.

Look for more highlights and details from Covington’s fascinating discussions and his 2019 market outlook for the Northeast and the Southeast in a future Farmshine.

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