Overview of U.S. and Michigan Dairy Industries Dr. Craig Thomas Michigan State University Extension Dairy Educator Sanilac, Huron, Tuscola, St. Clair, Lapeer, Genesee, Macomb, Oakland & Saginaw Counties How Milk Is Sold In The U.S. Unit of sale: Dollars per hundredweight (cwt) 1 cwt = 100 pounds 1 cwt = 12.0 gallons (8.33 lbs/gal) 1 cwt = 45.44 liters 1 cwt = 45.36 kilograms 2 How Milk Is Sold In The U.S. Method of sale: Farmer to farmer-owned cooperatives (e.g., Michigan Milk Producers Association, Dairy Farmers of America) Farmer to processors (e.g., Dean Foods) Farmer to consumers 3 How Milk Is Sold In The U.S. Top U.S. Dairy Cooperatives (2004) Rank Dairy Cooperative Total Milk Total Milk Number of Marketed Marketed Member Farms (million lb) (million kg) 12,814 35,975 16,318 656 15,188 6,889 3,557 11,912 5,403 679 6,736 3,055 1 Dairy Farmers of America 2 California Dairies, Inc. 3 Land O'Lakes, Inc. 4 Northwest Dairy Association 5 Family Dairies, USA 3,960 6,678 3,029 6 Dairylea Cooperative, Inc. 2,357 5,612 2,545 7 Associated Milk Producers, Inc. 4,000 5,211 2,364 8 Manitowoc Milk Producers Coop 2,924 5,211 2,364 9 Foremost Farms, USA 3,120 4,774 2,165 10 Select Milk Producers, Inc. 78 3,658 1,659 11 Michigan Milk Producers Assoc. 1,684 3,308 1,500 12 Southeast Milk, Inc. 310 2,895 1,313 ~90% of total U.S. milk marketed 4 U.S. Dairy Farm Data USDA 2011 U.S. data: Total cows: 9.194 million Total dairy herds: ~53,000 (licensed)(~173 cows/herd ave.) Total milk production: 196.245 billion pounds (89.2 billion liters; 89.0 billion kilograms) Average milk/cow per year: 21,525 lb/cow (9,782 liter; 9,764 kg) Average milk price: ~$20.14/cwt ($0.443/liter; $0.444/kg) Total milk income: ~$39.5 billion ($4,335/cow) 5 U.S. Dairy Farm Data Apr-2012 9,272,000 6 U.S. Dairy Farm Data 7 U.S. Dairy Farm Data Average = -6.0% Total = -61.2% Licensed Dairy Herds: U.S. 1995-2010 150,000 Herds 130,000 110,000 90,000 70,000 50,000 Year 8 U.S. Dairy Farm Data Average Dairy Herd Size 1995-2010 Michigan U.S. Number of Cows 200 175 150 125 100 75 50 Year 9 U.S. Dairy Farm Data U.S. Dairy Herd Structure, 2003-2011 Dairy Herds (by herd size) 200- 500- 1,000- Total Year <200 499 999 1,999 2,000+ Herds 2003 78,630 4,765 1,700 815 450 86,360 2004 73,810 4,700 1,700 815 495 81,520 2005 70,565 4,662 1,700 850 523 78,300 2006 67,270 4,567 1,700 870 573 74,980 2007 62,316 4,359 1,720 920 680 69,995 2008 59,700 3,950 1,720 900 730 67,000 2009 57,800 3,850 1,700 910 740 65,000 2010 55,200 3,950 1,670 920 760 62,500 2011 52,600 4,000 1,650 950 800 59,750 Source: USDA-NASS, "Farms, Land in Farms and Livestock Operations, 10 U.S. Dairy Farm Data USDA 2010 U.S. data: 500+ cow herds: 5.4% of all herds 500+ cow herds: 56.7% of all dairy cows 500+ cow herds: 61.0% of total milk production 11 U.S. Dairy Farm Data (total milk production) Top 10 U.S. Dairy States (total milk production, 2011) Milk/cow Rank State (lbs./year) Total Milk Total Milk Total Milk Production Production Production % of U.S. Cows (billion pounds) (billion liters) (billion kg) Total Number of 1 2 1 California 23,435 1,769,917 41.5 18.8 18.8 21.1% 2 Wisconsin 20,660 1,265,083 26.1 11.9 11.9 13.3% 3 Idaho 22,940 578,417 13.3 6.0 6.0 6.8% 4 New York 20,990 610,000 12.8 5.8 5.8 6.5% 5 Pennsylvania 19,610 540,750 10.6 4.8 4.8 5.4% 6 Texas 22,190 431,333 9.6 4.3 4.3 4.9% 7 Minnesota 18,965 470,417 8.9 4.1 4.0 4.5% 8 Michigan 23,165 365,917 8.5 3.9 3.8 4.3% 9 New Mexico 24,840 328,583 8.2 3.7 3.7 4.2% 10 Washington 23,700 260,333 6.2 2.8 2.8 3.1% 6,620,750 72.0% 145.6 74.2% 66.2 66.0 196.245 89.2 Total % U.S. Total 74.2% 1,2 NASS: Milk Production Report 3 NASS: Agricultural Prices 89.0 12 U.S. Dairy Farm Data (milk per cow) Top 10 U.S. Dairy States (milk per cow, 2011) Milk/cow Rank State (lbs./year) Total Milk Milk Milk Dairy Cows Production Per Cow Per Cow Cows % of U.S. Total (billion pounds) (liters/year) (kg/year) Number of 1 2 1 New Mexico 24,840 328,583 3.6% 8.2 11,288 11,267 2 Washington 23,700 260,333 2.8% 6.2 10,770 10,750 3 Colorado 23,510 127,500 1.4% 3.0 10,684 10,664 4 Arizona 23,475 187,750 2.0% 4.4 10,668 10,648 5 California 23,435 1,769,917 19.3% 41.5 10,650 10,630 6 Michigan 23,165 365,917 4.0% 8.5 10,527 10,507 7 Idaho 22,940 578,417 6.3% 13.3 10,425 10,405 8 Texas 22,190 431,333 4.7% 9.6 10,084 10,065 9 Iowa 21,285 203,917 2.2% 4.3 9,673 9,655 10 Kansas 21,210 122,917 1.3% 2.6 9,638 9,621 196.245 89.2 89.0 Total % U.S. Total 4,376,583 47.6% 1,2 NASS: Milk Production Report 3 NASS: Agricultural Prices 13 U.S. Dairy Farm Data (gross income per cow) Top 10 U.S. Dairy States (gross income per cow, 2011) Rank State Milk/cow Number of All-milk price Gross $/cow (lbs./year)1 Cows2 ($/cwt)3 ($/year) 1 Washington 23,700 260,333 $20.62 $4,891 2 Michigan 23,165 365,917 $20.96 $4,857 3 New Mexico 24,840 328,583 $19.42 $4,825 4 Colorado 23,510 127,500 $19.97 $4,697 5 Arizona 23,475 187,750 $19.84 $4,650 6 Texas 22,190 431,333 $20.82 $4,617 7 Florida 19,105 118,500 $24.21 $4,605 8 New York 20,990 610,000 $21.43 $4,499 9 Kansas 21,210 122,917 $20.93 $4,439 10 Oregon 20,410 121,167 $21.35 $4,362 2,674,000 29.1% $20.95 $4,644 Total % U.S. Total 1,2 NASS: Milk Production Report 3 NASS: Agricultural Prices 14 U.S. Dairy Farm Data (gross income per cow) Top 10 U.S. Dairy States (gross income per cow, 2011) Rank State 1 Washington 2 Michigan Milk/cow Number of All-milk price Gross $/cow (lbs./year)1 Cows2 ($/cwt)3 ($/year) 23,700 260,333 $20.62 $4,891 23,165 365,917 $20.96 $4,857 Michigan 2004-2011 #1 in gross income per cow 3 New Mexico 24,840 328,583 $19.42 $4,825 4 Colorado 23,510 127,500 $19.97 $4,697 5 Arizona 23,475 187,750 $19.84 $4,650 6 Texas 22,190 431,333 $20.82 $4,617 7 Florida 19,105 118,500 $24.21 $4,605 8 New York 20,990 610,000 $21.43 $4,499 9 Kansas 21,210 122,917 $20.93 $4,439 10 Oregon 20,410 121,167 $21.35 $4,362 2,674,000 29.1% $20.95 $4,644 Total % U.S. Total 1,2 NASS: Milk Production Report 3 NASS: Agricultural Prices 15 Michigan Dairy Farm Data USDA 2011 Michigan data: Total cows: 366,000 Total dairy herds: 2,186 (average herd size = ~167 cows) Total milk production: 8.48 billion pounds (3.85 billion liters; 3.85 billion kilograms) Average milk price: ~$21.39/cwt ($0.471/liter; $0.471/kilogram) Total milk income: ~$1.813 billion 16 Michigan Dairy Farm Data 22.4% increase since 1999 17 Michigan Dairy Farm Data 57.3% increase since 1998 18 Michigan Dairy Farm Data Average Dairy Herd Size 1995-2010 Michigan U.S. Number of Cows 200 175 150 125 100 75 50 Year 19 Michigan Total 366,000 Cows ~85% of Michigan dairy cows are in 5 major milk sheds ~51,000 Cows ~69,000 Cows ~66,000 Cows ~73,000 Cows ~46,000 Cows Michigan Farm Data USDA Michigan data: Total farms (all types): 55,000 (2009) Land in farms: 10,000,000 acres (4.05 million hectares) Average value per acre: $3,750 ($1,518/hectare) Average milk price (2011): ~$21.39/cwt ($0.471/liter; $0.471/kilogram) Total milk income (2011): ~$1.813 billion 21 Michigan Farm Data 22 Michigan Farm Data Michigan crops acreage, production, price, and value, 2008 Crop Unit Harvested Harvested Value of Acres Acres Production Price Production (1,000 acres) (hectares) (x 1,000) (USD) (million USD) Corn bushels 2,140 866,027 295,320 $3.60 $1,063.2 Hay tons 1,020 412,779 2,633 $153.00 $401.9 Soybeans bushels 1,890 764,856 69,930 $9.20 $643.4 Dry beans cwt 195 78,914 3,607 $38.00 $137.1 bushels 710 287,327 48,990 $5.65 $276.8 Potatoes cwt 42.5 17,199 14,875 $10.50 $156.2 Sugar beets tons 136 55,037 3,903 $36.00 $140.5 Oats bushels 60 24,281 3,960 $3.30 $13.1 Barley bushels 10 4,047 460 $3.25 $1.5 Maple syrup gallons 405 163,898 105 $41.00 $4.3 Peppermint pounds 0.8 324 36 $28.00 $1.0 Spearmint pounds 1.5 607 90 $15.00 $1.4 Fruits & nuts 109 44,111 NA $363.3 Vegetables 105 42,492 NA $239.1 6,668 2,698,444 NA $3,447.0 Wheat Principal crops 23 Michigan Farm Data Michigan commodities ranked first in U.S. agriculture, 2008 Item Unit Quantity Percent of (x 1,000) U.S. Beans, dry black cwt 1,691 57.8% Beans, dry cranberry cwt 108 76.6% Beans, dry small red cwt 425 52.1% Blueberries pounds 110,000 31.5% Cherries, tart pounds 165,000 77.0% Cucumbers (for pickles) tons 189.1 33.4% Other herbacious perennials pots 21,125 14.6% Geraniums (seeds and cuttings) pots 22,172 36.4% Grapes, Niagara tons 22.0 36.4% Impatiens flats 1,932 22.3% Petunias flats 1,476 19.8% Squash cwt 1,320 19.7% 24 Milk Marketing in the U.S. & Michigan Multiple component pricing Butterfat Protein } + + Other solids + Producer price differential + Somatic cell count adjustment = Total component value = Producer mailbox price Wholesale finished dairy product prices • Cheese • Butter • NFDM • Dry Whey converted to component prices + Co-op premiums (quality and/or volume) + Over-order premiums 25 Currently there are 10 FMMO’s in U.S. 26 Milk Marketing in the U.S. Classified Pricing Class I Bottled Milk Cultured Buttermilk Eggnog Class II Ice Cream Hermetically-Sealed Containers Yogurt/Cottage Cheese Pkg. Cream Class III Class IV Cheese Cream Cheese Butter NFDM 27 Milk Marketing in the U.S. Wholesale Cheese, Butter, NFDM, Whey Product Prices Component Values: butterfat, protein, other solids Class Prices: I, II, III, IV Farm Price: Location, Component & SCC Adjustments 28 Federal Milk Marketing Orders (FMMO’s) Classified pricing: Price of milk based on various class utilizations. 29 Milk Marketing in the U.S. $21.67 Aug, 2011 $19.13 $12.74 $9.31 Feb, 2009 30 Dairy Farm Economics (MI) Michigan Dairy Farm Business Analysis Summary (MDFBAS) Annual financial data collected from ~150 dairy farms in MI Farms not randomly selected Herd sizes vary from <50 cows to >2,000 cows Must produce at least 50% of gross cash farm income from milk and dairy animal sales Data sorted into three categories based on profitability: Low 25%, Average, High 25% 31 MDFBAS Data (1995-2010) Number of Cows 400 272.6 No. Cows 300 200 198.7 157.3 100 0 Low 25% Ave. High 25% Dairy ~30 to >2,000 cows 32 MDFBAS Data (1995-2010) Milk Sold Per Cow 25,000 Lbs. Milk 22,345 20,700 20,000 18,812 15,000 Low 25% Ave. High 25% Dairy +0.78 r2 with ROA 33 MDFBAS Data (1995-2010) High 25% +3,600 lbs. vs. Low 25% 34 MDFBAS Data (1995-2010) Average Milk Price $16.00 +$770 per cow/year $14.84 $14.73 $15.06 $14.93 $15.07 $14.96 Low 25% Ave. High 25% $/cwt $14.00 $12.00 $10.00 Dairy 35 MDFBAS Data (1995-2010) 36 MDFBAS Data (1995-2010) Total Crop Acres 1,000 Acres 750 878 696 605 500 250 0 Low 25% Ave. High 25% Dairy 37 MDFBAS Data (1995-2010) Percent of Cash Farm Income Milk Income 100% 80% 80.2% 81.9% 82.8% Low 25% Ave. High 25% 60% 40% 20% 0% Dairy 38 MDFBAS Data (1995-2010) Average Farm Assets $12,000 $10,509 $10,071 $9,032 $/cow $8,000 $4,000 $0 Low 25% Ave. High 25% Dairy 2011: $13,556/cow ~$4.96 billion total 39 MDFBAS Data (1995-2010) Average = +6.1% Total = +104.4% High 25% -$1,541/cow vs. Low 25% 40 MDFBAS Data (1995-2010) Average Farm Liabilities $4,000 $3,779 $3,083 $3,000 $/cow $2,679 $2,000 $1,000 Low 25% Ave. High 25% Dairy 2010 $5,019 $3,990 $3,248 41 MDFBAS Data (1995-2010) High 25% -$1,770/cow vs. Low 25% 42 MDFBAS Data (1995-2010) Debt:Asset Ratio (Ending) 100% Debts:Assets 80% 60% 40% 38% 32% 29% Ave. High 25% 20% 0% Low 25% Dairy 2010 34% 28% 25% 43 MDFBAS Data (1995-2010) Return on Assets (market) 20% 13.4% 12.6% 7.1% 6.7% Percent ROA 10% 0% -0.1% -0.1% -10% -20% Low 25% Ave. High 25% Dairy 2010 -0.2% 7.0% 12.1% 44 MDFBAS Data (1995-2010) Low 25% Ave. = -0.1% Stdev = 3.1% Min = -8.1% Max = 6.0% Average Ave. = 7.1% Stdev = 2.7% Min = 0.4% Max = 11.3% High 25% Ave. = 13.4% Stdev = 3.5% Min = 6.5% Max = 21.2% 45 MDFBAS Data (1995-2010) Net Worth Change $1,600 $1,200 $/cow $908 $800 $518 $400 $0 ($76) ($400) Low 25% Ave. High 25% Dairy Assets – Liabilities = Net Worth 46 MDFBAS Data (1995-2010) Net Farm Income (per cow) $1,200 $1,058 $/cow $800 $645 $400 $0 ($10) ($400) Low 25% Ave. High 25% Dairy After accrual adjustments 47 MDFBAS Data (1995-2010) Operating Expense Ratio 100% Operating Expense Ratio 86.7% 76.3% 75% 71.2% 50% 25% 0% Low 25% Ave. High 25% Dairy Higher productivity & lower cost 48 MDFBAS Data (1995-2010) Low 25% Ave. = $18.49 Stdev = $2.87 Min = $15.39 Max = $25.20 Average Ave. = $15.47 Stdev = $2.21 Min = $11.99 Max = $20.18 High 25% Ave. = $13.81 Stdev = $1.98 Min = $11.02 Max = $18.51 2010 $18.35 $16.70 $15.32 49 MDFBAS Data (1995-2010) Average = +2.6% Total = +39.3% 50 MDFBAS Data (1995-2010) Low 25% Ave. = $0.99 Stdev = $1.26 Min = -$1.69 Max = $3.06 Average Ave. = $2.53 Stdev = $1.05 Min = $0.29 Max = $4.36 High 20% Ave. = $3.17 Stdev = $1.16 Min = $0.75 Max = $5.17 51 MDFBAS Data (1995-2010) 52 MDFBAS Data (1995-2010) Top Ten Michigan Dairy Farm Cash Expenses 1995-2010 (Ave.) 40.0% Top 10 = 90.2% Red = 66.0% Blue = 24.2% $/cwt 30.0% 20.0% 10.0% 0.0% Expense 53 MDFBAS Data (1995-2010) Average = +3.6% Total = +55.9% 54 MDFBAS Data (1995-2010) Annual average feed prices used in the USDA milk:feed ratio. Annual Ave. Corn Price Annual Ave. Annual Ave. Annual Ave. Soybean Price Alfalfa Hay Price 16% Dairy Feed 1 Annual Ave. Purchased Feed Income Over Expense (Ave.) Feed Cost ($/cwt) ($/cwt)2 Year ($/bu) ($/bu) ($/ton) ($/cwt) 1998 $2.20 $5.93 $94.93 $4.74 $7.69 $4.35 1999 $1.89 $4.58 $83.03 $4.03 $7.39 $3.59 2000 $1.86 $4.73 $84.55 $4.06 $5.99 $4.20 2001 $1.89 $4.43 $102.74 $4.42 $7.52 $4.39 2002 $2.13 $4.93 $101.65 $4.68 $5.52 $4.18 2003 $2.27 $6.08 $93.70 $4.80 $5.74 $4.31 2004 $2.47 $7.56 $95.22 $5.20 $7.82 $4.33 2005 $1.96 $5.95 $103.56 $4.71 $7.49 $4.66 2006 $2.28 $5.65 $108.55 $5.06 $5.86 $4.14 2007 $3.38 $7.74 $130.92 $6.80 $9.04 $6.92 2008 $4.78 $11.31 $162.50 $9.19 $7.30 $6.22 2009 $3.75 $10.05 $124.00 $7.29 $4.70 $5.10 2010 $3.83 $9.97 $116.33 $7.20 $6.98 $5.27 Correlations 0.79 0.71 0.85 0.82 0.40 1 Cost per hundredweight of 16% protein dairy feed. 2 Cost per hundredweight of milk produced (from Michigan Dairy Farm Business Analysis Summary database). 55 USDA Milk:Feed Ratio Data 56 USDA Milk:Feed Ratio Data 57 USDA Milk:Feed Ratio Data ~45% higher variation 58 MDFBAS Data (1995-2010) 59 MDFBAS Data (1995-2010) 60 MDFBAS Data (1995-2010) 61 2012 Dairy Outlook 2012 Dairy Market Outlook • 2011 Class III prices: $15.77 (-$2.60 vs. 2011) • At 45th percentile of historic (2007-present) Class III prices • ppd’s should be normal for 2011 (~$1.00/cwt) • Commercial disappearance: +1.0% (Jan-Feb) • Very strong export market (~13% of U.S. total milk solids production) • Domestic dairy consumption very weak • Current prices absolutely dependent upon maintaining exports • U.S. milk output: +3.2% last seven months (2X vs. trend) • Cow numbers: 9.272 M (up 112K since 1/2011 despite above trend cull rate for last 25 of 26 months!) • Milk per cow: above trend last 5 consecutive months (+2.7%) 2012 Dairy Market Outlook • 2012 Outlook: tremendous pressure to increase milk production with declining profit margins • Cow numbers and milk per cow likely to continue growing as producers seek to meet debt payments. • Milk prices to continue below average for foreseeable future. • If any problems develop in dairy export market we could see a repeat of 2009. 2012? “Prediction is very difficult, especially if it is about the future.” -Neils Bohr 65 The End