Dairy Farming Is Changing

Dairy Pipeline: October 2007

Bennet Cassell
Extension Dairy Scientist, Genetics & Management
(540) 231-4762; bcassell@vt.edu

Change is inevitable in the dairy business, through constant evolution in response to all kinds of economic and technological pressures. What is always surprising, however, is the pace of change, especially in the last five to ten years. The USDA Economic Research Service recently documented changes in herd structure and profitability since 2000 in Report #47 “Profits, costs, and the changing structure of dairy farming.” This detailed report is full of facts and figures, some of which I’ll digest here. Full details are at http://www.ers.usda.gov/Publications/ERR47/. In the year 2000, 29% of milk produced in the US came from herds of less than 100 cows. By 2005, that percentage had dropped to 20%. Mega dairies took up the slack, and then some, as herds of more than 2,000 cows increased from 11% of total milk production in 2000 to 24% in 2005. Milk production in the Southeast continues to decline. Only Texas appeared among the top 16 states in milk production, and growth in that state is in the Texas Panhandle, which is much more Southwest than Southeast. Economies of scale – the efficiencies resulting from highly specialized management skills, bulk purchasing power, and marketing advantages contribute to the growth of very large dairies. These businesses buy feed and hire labor, whereas the small dairies rely on unpaid family labor and homegrown feed, with much lower purchased feed and hired labor costs per hundredweight of milk produced. Net returns on total costs (where unpaid family labor and interest on investment is charged against the business) clearly favor herds of over 500 cows. What does this mean for Virginia? Our state has not seen the dramatic shift to larger dairies that has occurred elsewhere. Growth has occurred, however. In January 2000, the 480 herds on supervised DHI test in Virginia averaged 130 cows apiece. In July 2007, the 325 herds remaining averaged 159 cows. Specialization works its way into Virginia herds in a more gradual fashion than national trends. Dairy production is a way to convert farm grown forages and family labor into cash. Business savvy operators wouldn’t start a new dairy that way today, but existing operations can get along pretty well with good management. Nevertheless, the handwriting is on the wall. Survivors in the Virginia dairy business of the future will be increasingly specialized either through low input approaches or through larger herds, more purchased feeds, and increased reliance on hired labor.