Dairy Industry Trends and
Opportunities
John F. Smith
Extension Dairy Specialist
Kansas State University
% of U.S. Inventory
Percent of U.S. Milk Production for
Different Herd Sizes
1999
30
2000
2001
20
10
0
1999
2000
2001
1-29
30-49
50-99
2
1.8
1.6
8.5
7.7
6.7
20.9
19.4
18.2
100199
200499
500999
1000>1999
1999
17.9
17.3
17.3
18
16.5
18
Herd Size
12.5
13.7
12.9
11.7
11.6
13.4
9.2
10.5
12.7
>200 cows = 57%
% of U.S. Inventory
Percent of U.S. Inventory (cows)
for Different Herd Sizes
1999
30
2000
2001
20
10
0
1999
2000
2001
1-29
30-49
50-99
3.1
2.9
2.6
10.1
9.1
8.1
23.2
22
20.9
100199
200499
18.4
16.3
18
16.7
17.4
16.4
Herd Size
500999
11
12
12
1000>1999
1999
10
10.1
11.5
>200 = 51%
7.9
9.2
11.1
% of U.S. Inventory
Number of Operations for
Different Herd Sizes in the US
1999
40000
2000
2001
30000
20000
10000
0
200499
500999
1999 32920 24055 32935 13250 5290
2000 30810 22110 31360 12865 5350
2001 28155 19865 29215 12335 5195
Herd Size
1600
1700
1700
1-29
30-49
50-99
100199
<200 = 89,570 Herds
1000>1999
1999
695
695
770
255
280
325
>200 = 7990 herds (8.2%)
Percent of U.S. Milk Production
from Dairies with > 200 Cows
60.0
50.0
40.0
30.0
20.0
10.0
93
94
95
96
Source: USDA-NASS
97
98
99
0
1
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
104
86
13
13
13
* Assumes a ration containing 0.78 Mcal/lb of dry matter
* Assumes environmental factors are constant.
Pounds of Feed
Pounds of Milk
96
Total number of milk cows and milk production per
cow on dairy farms in the United States
Number of Cows
Pounds/Cow
20
90’s + 2989 lb/c/y
Cows/Farm
(Millions)
25
18
16
14
20
12
15
10
8
10
6
80’s + 2432 lb/c/y
5
4
2
0
19
25
19
30
19
35
19
40
19
45
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
19
99
0
Year
Compiled from: USDA Statistical Bulletin 303, 430
USDA Statistical Bulletin Entitled Milk: Final Estimates for Various Issues.
Milk/Cow
(Thousand Pounds)
30
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
1999
1990
Northeas
t 18.5%
Northeast
18.3%
West
32.9%
West
41.6%
Southeast
7.7%
Southeas
t 10.4%
Midwest
38.2%
Midwest
32.4%
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
Annual Parlor Ownership
Costs per Cow
Effect of Herd Size on Annual Ownership Costs Per
Cow for a Double-8 Herringbone
700
$691
600
500
$401
400
$304
300
$255
$226
200
100
0
100
200
300
400
Herd Size (total cows)
Source: Craig Thomas, Michigan State University
500
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!