Dairy Industry Trends and Opportunities

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Dairy Industry Trends and Opportunities

• John F. Smith
• Extension Dairy Specialist
• Kansas State University

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Percent of U.S. Milk Production for Different
Herd Sizes
200 cows 57
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Percent of U.S. Inventory (cows) for Different
Herd Sizes
200 51
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Number of Operations for Different Herd Sizes in
the US
200 7990 herds (8.2)

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Percent of U.S. Milk Production from Dairies with
200 Cows
Source USDA-NASS
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Two Ways to Increase Milk Production

• Milk More Cows
• Increase Milk Production per Cow
• Operations over 200 cows are doing both

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Pounds of Feed (DM Basis) Required For
Maintenance at Different Levels of Peak Milk
Production
104
96
86
Pounds of Feed
Pounds of Milk
13
13
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Assumes a ration containing 0.78 Mcal/lb of dry
matter Assumes environmental factors are
constant.
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Total number of milk cows and milk production per
cow on dairy farms in the United States
90s 2989 lb/c/y
80s 2432 lb/c/y
Compiled from USDA Statistical Bulletin 303, 430
USDA Statistical Bulletin Entitled Milk
Final Estimates for Various Issues.
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Consolidation!!!
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Opportunity!!!
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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

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Total Milk Production by Region of the United
States
Adapted from U.S. Dairy Industry Statistics
1900-99. Hoards West. April 25, 2000. Pg
50-51.
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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

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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

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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

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Whos Building These New Dairies?

• Expansion of Existing Operations
• Relocations
• CA
• Other States
• Immigrants
• Unknown Entities or Investor Groups
• Business Structure Changes

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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

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Effect of Herd Size on Annual Ownership Costs Per
Cow for a Double-8 Herringbone
Source Craig Thomas, Michigan State University
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Investment in Facilities and Livestock
KSU Dairy enterprise budgets, 2001
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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

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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

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Thank You!