Dairy Industry Trends and Opportunities

John F. Smith

Extension Dairy Specialist

Kansas State University

Percent of U.S. Milk Production for Different Herd Sizes

0

10

20

30

Herd Size

% o

f U.S

. Inv

ento

ry

1999 2000 2001

1999 2 8.5 20.9 17.9 17.3 12.5 11.7 9.2

2000 1.8 7.7 19.4 17.3 18 13.7 11.6 10.5

2001 1.6 6.7 18.2 16.5 18 12.9 13.4 12.7

1-29 30-49 50-99100-199

200-499

500-999

1000-1999

>1999

>200 cows = 57%

Percent of U.S. Inventory (cows) for Different Herd Sizes

0

10

20

30

Herd Size

% o

f U.S

. Inv

ento

ry

1999 2000 2001

1999 3.1 10.1 23.2 18.4 16.3 11 10 7.9

2000 2.9 9.1 22 18 16.7 12 10.1 9.2

2001 2.6 8.1 20.9 17.4 16.4 12 11.5 11.1

1-29 30-49 50-99100-199

200-499

500-999

1000-1999

>1999

>200 = 51%

Number of Operations for Different Herd Sizes in the US

0

10000

20000

30000

40000

Herd Size

% o

f U.S

. Inv

ento

ry

1999 2000 2001

1999 32920 24055 32935 13250 5290 1600 695 255

2000 30810 22110 31360 12865 5350 1700 695 280

2001 28155 19865 29215 12335 5195 1700 770 325

1-29 30-49 50-99100-199

200-499

500-999

1000-1999

>1999

>200 = 7990 herds (8.2%)<200 = 89,570 Herds

Percent of U.S. Milk Production from Dairies with > 200 Cows

-

10.0

20.0

30.0

40.0

50.0

60.0

93 94 95 96 97 98 99 0 1

Source: USDA-NASS

Two Ways to Increase Milk Production

• Milk More Cows

• Increase Milk Production per Cow

• Operations over 200 cows are doing both

Pounds of Feed (DM Basis) Required* For Maintenance at Different Levels of Peak Milk

Production

10496

86

13 1313

Po

un

ds

of

Milk

Po

un

ds

of

Fe

ed

* Assumes a ration containing 0.78 Mcal/lb of dry matter* Assumes environmental factors are constant.

Total number of milk cows and milk production per cow on dairy farms in the United States

0

5

10

15

20

25

30

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

1999

Year

Co

ws

/Fa

rm(M

illio

ns

)

0

2

4

6

8

10

12

14

16

18

20

Milk

/Co

w(T

ho

us

an

d P

ou

nd

s)

Number of Cows Pounds/Cow

Compiled from: USDA Statistical Bulletin 303, 430 USDA Statistical Bulletin Entitled Milk: Final Estimates for Various Issues.

80’s + 2432 lb/c/y

90’s + 2989 lb/c/y

Consolidation!!!

Opportunity!!!

Other Industry Trends

• Many producers are building new facilities– Upgrading existing facilities– New facilities

• Urban encroachment is encouraging producers to relocate creating new dairy pockets– ID,NM,TX,KS,IA,IN,MI– Tax implications

Total Milk Production by Region of the United States

1990

Midwest 38.2%

Southeas

t 10.4%

Northeast 18.5% West

32.9%

1999

Northeast 18.3%

Southeast 7.7%

Midwest 32.4%

West 41.6%

Adapted from: U.S. Dairy Industry Statistics 1900-99. Hoards West. April 25, 2000. Pg 50-51.

Other Industry Trends• Significant Premiums for Shipping a Tanker of Milk

– $0.10-1.80 cwt.• Dilute Fixed Assets over as Many Cows as Possible

– Milking parlor & Manure mgt.• Manage Employees• Partnerships & Business Structures

– Combining Resources

• Increase in the Number of Multiple Unit Operations

Where will the Cows Go?

• Social Acceptance• Environmental Pressure

– Large Tracts of Land

• Quality of Life• Climate

– Both Cold & Hot

• Economic Incentives– Milk Market– Local Incentives

Potential Locations for New Dairies

• Big 3-CA, ID, NM• High Plains-SD, NE, KS• Eastern Oregon• Panhandle of TX & OK• I-29 Corridor-SD, MN, IA, NE, KS, MO• Tri-State Area-IL, IN, OH• Upper Midwest• Western New York• Utah, Nevada, Montana & Wyoming

Who’s Building These New Dairies?

• Expansion of Existing Operations

• Relocations– CA– Other States– Immigrants

• Unknown Entities or Investor Groups– Business Structure Changes

Limitations to Expansion or Relocation

• Capable Managers• Ability to Obtain Permits

– Clear Definition of Requirements– Permits Held Up in Court

• Social Acceptance• Technical Support

– Engineers, Contractors, Technicians, Management Specialist

Effect of Herd Size on Annual Ownership Costs Per Cow for a Double-8 Herringbone

$691

$401

$304$255 $226

0

100

200

300

400

500

600

700

100 200 300 400 500

Herd Size (total cows)

An

nu

al P

arlo

r O

wn

ersh

ip

Co

sts

per

Co

w

Source: Craig Thomas, Michigan State University

Investment in Facilities and Livestock

Number of Lactating Cows

Housing Type Investment per Lactating Cow

100 Freestalls $6,582

600 Freestalls $5,105

2400 Freestalls $4,751

2400 Dry-lot $3,932

KSU: Dairy enterprise budgets, 2001

Summary

• The dairy industry at the farm level is consolidating very rapidly.– 8.2% of the herds produce 57% of the milk

51% of the cows

• New dairy pockets are developing rapidly– Relocating dairies– Expansion of existing dairies

Summary

• Business structures are changing• Dilute the cost of facilities over as many

cows as possible• Shortage of people with the management

skills needed to run a large dairy• Limited number of places where large

dairies can be built• Volume and quality premiums

Thank You!