WCMA Notes: Costs Rising While USDA Builds Its Mandatory Surveys

USDA is moving forward to construct mandatory surveys of dairy product manufacturing costs, authorized by Congress in the One Big Beautiful Bill Act, but manufacturing costs are moving forward as well.  

The cost surveys, uniformly supported by the dairy industry, are needed ASAP. 

At the heart of these dairy plant surveys is USDA’s need to learn the cost to produce block cheddar cheese, dry whey, nonfat dry milk and butter. These costs, known as the make allowance for each product, are key components in national milk pricing formulas. 

USDA took up reforms for national milk pricing in 2023, at the request of Wisconsin Cheese Makers Association and International Dairy Foods Association, including a 49-day public hearing in the fall of 2023 that offered volumes of data on production costs.  

On September 15, 2023, Kim Heiman, President of Nasonville Dairy in Marshfield, WI, took the stand and offered the family-run manufacturer’s cost spreadsheets to USDA officials in testimony for reforming the cheddar cheese make allowance. Nasonville Dairy produces cheddar and other block styles, in addition to its feta operation onsite. 

Nasonville’s data, publicly available online, showed the mid-sized factory – processing 1.7 million pounds of milk per day – produced block cheddar at 32.26 cents per pound in 2022.  

As you recall, USDA settled on a 25.19-cent make allowance for cheddar – effective in June 2025 – a crucial gain from the then 14-year-old make allowance of 20.03 cents.  But for Nasonville, even this updated allowance for manufacture was seven cents shy of their costs in 2022. 

This spring, USDA began to build a rule to detail the mandatory surveys the agency would execute biennially with dairy manufacturers.  USDA will seek manufacturing costs and also yield data for the four dairy products embedded in milk pricing formulas.  

It’s harder than it sounds.  

For example, discovering the cost to produce cheddar cheese in factories that also produce several other cheese styles, and perform milk standardization and whey processing, means plants must carefully allocate a portion of labor costs, energy costs, ingredient costs, packaging costs, depreciation and more, just to the cheddar production in their plant.  

Previous voluntary cost surveys in industry explored various ways to handle this untangling: a cheddar plant could be asked to match a percentage of costs to the percentage of their milk solids that flowed into cheddar production. In recent years, an updated method tried to match production costs with true processing costs, rather than just how much product a plant produced.  For example, drying nonfat dry milk or whey uses far more energy than the production of other dairy products. 

USDA is weighing this complexity against need to design mandatory surveys that plants large and small can execute, according to an agency official. There is no federal accounting standard for cost accounting, and each plant USDA has visited in preparation for this rule determines its costs differently. 

A Proposed Rule defining the mandatory surveys and reports on these surveys is likely from USDA before the end of 2026. The dairy industry filed comments this spring on USDA’s first step – an Advanced Notice of Proposed Rulemaking. In that step, USDA asked industry for comments on: 

• The appropriate cost categories (such as labor and packaging) 

• How to allocate costs (as described above) 

• The timeframe of reported data 

• The timeframe covered in a biennial report 

• Data for product yields 

• How industry keeps and holds cost data 

Key to the process is the surveys themselves, which are planned as secure, online software tools that USDA is now building with third-party vendors. Dairy plants would log into a survey, with the ability to add and store data through time. These software tools will not necessarily be ready when a Proposed Rule is issued in 2026, USDA told WCMA. 

Determining plant costs in each make allowance is complicated, and determining product yields is equally complex. Make allowances and yield factors both plug into milk pricing formulas and are crucial for determining the price farms are paid for milk.  

Figuring out cheese yield seems like a simple question: how much cheese did your farm milk produce? But these days, incoming farm milk is standardized to get a perfect balance of fat and protein ready for cheesemaking – fat is sometimes skimmed, protein is often added. Yield is now related to this “recipe” more than just the incoming milk.  

All this complexity will soon filter down to Nasonville Dairy, and the 16 other business entities making block cheddar in the U.S. It’s these businesses, and 15 butter companies, 18 nonfat dry milk makers and 13 dry whey producers, who USDA will tap to execute these new mandatory cost surveys.  

At the 2023 federal order hearing to reform milk price formulas, Kim Heiman from Nasonville Dairy reported in great detail on the labor, utilities, packaging, ingredient, maintenance, administrative, depreciation and other costs that his company assigned to their block cheddar production.  But the 32.26 cents per pound to make cheddar in his 2022 data has not stood still. 

Nasonville routinely updates its cost spreadsheets and by the end of 2025, their cost to make cheddar had risen to 35.16 cents per pound, about 10 cents higher than today’s official USDA make allowance.  

There’s no single “smoking gun” lifting Nasonville’s costs.  Their 3-cent rise in costs from 2022 to 2025 includes incremental increases in wages, ingredients, repairs and maintenance, supplies and depreciation. Undoubtedly, their cost increases are reflected across the dairy processing industry.  

USDA’s current effort to develop mandatory surveys and reports on production costs every two years is welcome. It’s a complex undertaking, but it is also a vast improvement over the 14-year gap in updating costs that the industry finally fixed a year ago.