United States
Department of
Agriculture
Rural Business–
Cooperative
Service
RBS Research
Report 188
Cost of Balancing Milk
Supplies: Northeast
Regional Market
Abstract
The seasonal nature of milk production and fluid consumption necessitates maintain-
ing seasonal and operating reserves to ensure fluid demand is satisfied. Operating
reserves are maintained at a certain percentage of fluid milk needs to satisfy day-to-
day fluctuation in demand. Seasonal reserves vary month to month depending on pro-
duction and consumption level. Manufacturing plants incur higher costs because of the
fluctuating reserve milk volume. The costs of balancing reserve milk supplies are esti-
mated using two scenarios. One assumes the volume of operating reserves is 10 per-
cent of fluid demand, and the other, 20 percent.
Keywords: Milk, operating reserves, seasonal reserves, reserve-balancing cost.
Cost of Balancing Milk Supplies:Northeast Regional Market
K. Charles Ling
Rural Business-Cooperative Service
United States Department of Agriculture
RBS Research Report 188
October 2001
Preface
This is an update of A Reserve-Balancing Pool for Services by Dairy Cooperatives,
ACS Research Report 51, published in August 1985 (1) .This report clarifies the
methodology and uses actual milk volumes and utilizations of the Northeast market to
estimate the costs incurred by manufacturing plants in balancing reserve milk supplies.
This update was requested by the Association of Dairy Cooperatives in the Northeast,
which consists of Agri-Mark, Inc., Dairy Farmers of America, Inc., Dairylea
Cooperative, Inc., Land O’Lakes, Inc., Maryland & Virginia Milk Producers Cooperative
Association, Inc., St. Albans Cooperative Creamery, Inc. and Upstate Farms
Cooperative, Inc.
i
Contents
Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i
Seasonal Nature of Milk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Reserves To Satisfy F