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Over-Production Impacts Profitability in the Dairy Industry

10/15/2018

Despite the prospect of increased access to the dairy market in Canada if the USMCA is ratified in 2019, U.S. producers are impacted by a surfeit of milk and dairy products.  It is calculated that 172 dairy farms in New York state ceased milking during the past 12 months representing 7.5 percent of the state’s production.  Michigan lost 120 farms or 20 percent of production over the past four years.  Globally milk production has increased by 2.3 percent in the face of decreased demand.  The market for dairy products including liquids has been eroded by milk substitutes and changing taste in beverages.

 

According to the Farm and Dairy, October 4th edition, Dianne Shoemaker posed a number of questions including the prospects for a turnaround in prices and the extent to which profitability will be restored.  Shoemaker states, “We simply have too many cows.”  She cited USDA data in August, showing 9.4 million dairy cows in the U.S. This exceeds the consensus requirement of 9.0 million producing animals.  An excess of milk is reflected in low prices.  EGG-NEWS has previously commented on dairy farmers abandoning organic production based on the low margins resulting from decreased demand for this expensive category.

 

The dairy industry provides a valuable lesson for egg producers.  Over-production leads to a depression in unit revenue.  Fortunately, only one month in 2018 has produced a USDA- benchmark price below the average cost of production, although margins for shell eggs have been variable and seasonal.  Extreme competition has prevented producers from generating cash reserves including depreciation. Investment of up to $35 per hen will be necessary to replace existing cage housing with modern but expensive alternative aviaries or floor systems.