Happy days are here again in the Pacific Northwest as we hit winter solstice and the days are getting longer. It’s amazing how a few days of sunshine will fire back up the dopamine receptors.

With this new weather and new year, there are big changes coming regarding the make allowance and how dairy farmers are paid for their milk. There is an old joke saying that only three people know how milk is priced to the farmers and two of them are dead. This is fairly accurate. And, if you came here expecting a deep insightful dive into the changes in the Federal Milk Marketing Orders and make allowance, I have some terrible news.

I do, however, believe that when peeling back the layers of the onion, the root cause of all of this is co-op level profitability. It’s no secret we are in a tough, low-margin business. When you look at what it takes to make and sell a gallon of soda to a gallon of milk, the margins are orders of magnitude smaller.

While doing market-moving research on the Uber Eats app for Seattle, I noticed that a medium Coke is $2.49 and a milk is $1.99 when ordering at McDonald’s. When thinking about the logistics of getting the Coke to the McDonald’s restaurant, the Coke manufacturer doesn’t even need to ship any water. They are simply shipping the super special concentrated Coke syrup and plumbing in the water at the store location.

As a fun aside, Coca-Cola has had a longstanding relationship with McDonald’s, and their syrup sent to McDonald’s is more concentrated than the syrup sent to other customers. The syrup is also refrigerated to allow for a cold beverage. This makes McDonald’s sodas sweeter and more concentrated than soda products you may find at other places.

This medium Coke is produced for pennies.

Then, you compare the milk serving which needs to be produced on the farm, processed, bottled and trucked to the McDonald’s location. This comes back to our processors of milk products who are struggling. Struggling with milk plants that are potentially older, less efficient and making products that have low margins. These processors have also felt the effects of increased wages, increased repair costs, increased raw milk costs and low margins. This all leads to the lever that can be pulled to increase margins, and that is reducing the pay for farmers. The caveat is that the price reduction will vary based on where you are in the country and the products being processed.

It will be interesting to see if the milk market firms up over time to pay an increased milk price to the farmers. The milk price has recently been well supported as bird flu ravages California and heifer inventories remain light. Lower feed prices help make profitability easier too.

As farmers, we tend to not put a lot of thought into the profitability of milk once it’s on the truck and off the farm. This is going to start changing as we see our investments in co-ops balloon higher as we are tasked with supporting them through this period of uncertainty.

So let’s raise a glass to our industry as we all seek to find profitability on every level through innovation and efficiency.