While milk production in the US continues to increase, the number of dairy farms continues to decline, but at an ever-increasing rate.

Between 2018 and 2019, almost 9% of dairy farmers ceased milk production and almost 7% ceased the year previously. That means almost one in five farmers who milked cows in 2017 were not milking cows in 2019. Between 2002 and 2017, the average rate of exit from milk production was 4%, but this has doubled in the last two years and 2020 looks to be another record year for dairy dispersal sales.

Low milk prices and high feed costs have eroded profitability in US dairy farming. Figures from the United States Department of Agriculture (USDA) show that the average US dairy farm made a net loss of $1.78/cwt in 2019, when own labour and the opportunity cost of land and equipment is factored in. However, there is nothing new in this as the records show losses in all of the last 14 years with the exception of 2007 and 2014, the last high milk price year in the US.

In the 10 years prior to 2007, the average cost of feed (blend of corn silage/soya bean/alfalfa) was $4.62/cwt. Between 2008 and 2019 the average cost of feed increased to $8.90/cwt, peaking in 2012 at $12.16/cwt. Feed costs are currently $7.70/cwt, the lowest in three years but still not enough to make farmers profitable.

There was little or no volatility between 2015 and 2019 – prices were just low

The price farmers are receiving for their milk is a big issue. The last five years have been horrific from a milk price perspective, averaging around $17/cwt. Even though milk prices in the US were volatile between 2009 and 2015, farmers did get to benefit from the peaks, such as the $26/cwt received in late 2014.

There was little or no volatility between 2015 and 2019 – prices were just low, with monthly prices hovering between $15 and $19/cwt. Prices did start to rise towards the end of 2019 and early 2020, but COVID-19 put paid to that. Prices for Class III milk (milk for cheese production) dropped to $12/cwt in May of this year. The next month they jumped to almost $22/cwt as the country reopened and demand shot up.

However, prices have since reduced and the USDA forecast for 2021 is that Class III milk will average $16/cwt.

Another concern is farm debt. In 2000, total debt levels on US farms was $233bn, after adjusting for inflation. Currently, that figure stands at $433bn and continues to rise at about 4% per year. The number of bankruptcies is also increasing, up 20% in 2019 and most of these are taking place in the primarily dairy state of Wisconsin – home of the family dairy farm.

Farm incomes would be a lot worse if it wasn’t for the massive amounts of money given to US farmers by the government. The 2018 Farm Bill saw the introduction of the Dairy Margin Coverage Programme, a follow-on from the Margin Protection Programme which guarantees farmers who are enrolled in the programme a minimum margin over feed costs.

Government supports are not enough to stem the tide of small dairy farmers exiting the sector

For as little as $100 to register, US dairy farmers can be guaranteed a margin of $4/cwt over the cost of feed. Farmers have to pay more for higher margin protection, paying up to $0.11/cwt on all milk sold to secure a maximum margin of $9/cwt. In 2019, 84% of dairy farmers enrolled in the scheme and the average payment was over $13,000 per farmer, with payments triggered between January and July 2019.

Government supports are not enough to stem the tide of small dairy farmers exiting the sector. States that have the most dairy farms are seeing the largest decline in dairy farm numbers. Wisconsin, which produces 14% of all the milk in the US, is seeing the highest rate of decline in dairy farm numbers at 9.2% in 2019.

However, milking cow numbers and milk output in the US is not decreasing. Overall milk production has increased by 13% between 2010 and 2019. Over this time dairy cow numbers have increased by 2% to 9.34m cows. Milk output per cow has had a greater impact, increasing by almost 11% to 10,292 litres per cow on average.

The trend is very much towards consolidation, with an increasing proportion of the national herd now in large herds. Traditionally, large herds were mostly near the west coast, with the east coast and mid-west dominated by smaller dairy herds. As recently as 2007, 25% of all cows in the eastern region were in herds of 50 to 100 cows. By 2017 that was down to 16%.

The 2017 census identified 189 farms with 5,000 or more cows. There were 1.5 million cows milked in these herds

In 2007, 14% of all cows in the eastern region were in herds of more than 1,000 cows, by 2017 that was 30%. In the west the figure is even starker, with 84% of all cows in herds of 1,000 or more. The share of milk being produced in the west has increased from just over 30% in 1992 to almost 50% today.

The 2017 census identified 189 farms with 5,000 or more cows. There were 1.5 million cows milked in these herds, which represents 16% of the total cow population. There were just eight of these large farms identified in the 1992 census, compared with 47 in 2002 and 142 in 2012. The trend is towards fewer but larger herds. According to a USDA report on dairy consolidation, the largest herds in the US today have more than 25,000 cows. The frontier keeps getting bigger.

Contrary to public perception, these large farms are still family farms, as classified by the USDA. Some 92% of farms with between 1,000 and 2,000 cows are classed as family farms and 88% of farms over 2,000 cows are classed as family farms. A family farm is defined as such if the principal operator and those related to the principal operator own more than 50% of the farm assets. If a family owns a farm but the farm is run by an un-related hired manager, then that is not classed as a family farm.

Scale

The small dairy farmer in the US is getting squeezed out. In 2016, only 9% of farmers with fewer than 100 cows made enough money to repay all bills, including paying back debt. Farmers can put up with a lack of profit for only so long. The hope of higher milk prices to come, delaying essential investment and taking lower family drawings will buy them time. Unfortunately, for many US farmers, time is running out and unless milk prices recover the exodus will grow. Larger farms are much doing better, as evidenced by Lloyd Holterman’s account below. According to the USDA, 43% of farms between 500 and 2,000 cows paying all bills and repaying debt in 2016. That figure is 62% for farms over 2,000 cows. The better farmers got bigger and continue to grow.