March 8, 2019

Replacements Could Be in Short Supply Going Forward

 |  By: Fran Howard

Years of poor margins on dairies means a vast majority of the nation’s dairy producers have no intention of expanding their operations anytime soon. But for those who have expansion plans on the back burner, getting the young stock they need to fill their facilities could become more difficult going forward.

“The U.S. dairy herd has been shrinking, and so has the supply of young stock that will fill milk parlors around the country in years to come,” says Sarina Sharp, analyst with the Daily Dairy Report. “As milk prices recover, dairy producers will have to restore their balance sheets before they can even consider expanding. But when dairy producers are ready to expand once again, their ambitions could be restricted by biology. It takes years to go from conception to calving to a mature heifer ready to milk. Today's breeding decisions will likely impact U.S. milk output for years to come.”

According to USDA’s latest semi-annual Cattle report, the inventory of milk cows as of January 1 was an estimated 9.35 million head, down 0.8% from the previous year. The supply of dairy heifers at 4.7 million was 1.4% or 67,000 head lower at the start of this year than at the beginning of 2018. 

“For the third straight year, the number of dairy heifers expected to calve and enter the milk cow herd has retreated. Since peaking in 2016, the number of dairy heifers expected to calve has fallen by 3.6 percent,” she says. “With prices for these heifers low, dairy producers will likely produce enough heifer calves to maintain their herds, but they likely won’t have the incentive to produce extra.” As of January 1, an estimated 3 million dairy heifers were expected to calve this year, 30,700 less than in 2018. After adjusting for inflation, the price for these pregnant heifers has dropped to $1,140/head, a price not seen since the dataset began in 1958, Sharp says. 

“Years of strained finances have boosted cull rates, prompting contraction in the milk-cow herd,” she says. Dairy cow slaughter climbed to a 32-year high in 2018, and year to date, dairy cow culling has accelerated 3.5% from last year’s rapid pace, according to Sharp. “In four of the past six weeks, slaughter volumes have topped 70,000 head, which is unprecedented,” Sharp says. “In the last 25 years, slaughter has only exceeded 70,000 head four times, and each time it occurred in the second week of January, when cull cow volumes were pent up after a holiday hiatus.”

Holstein bull calves have also been languishing at seven-year lows, which has encouraged some dairy producers to crossbreed a share of their cattle with beef genetics. “This is a one-way conversion,” notes Sharp. “While cattle with some dairy DNA are welcome in feedlots, heifers and cows with beef characteristics will not find a stall in a milk parlor. Cash-strapped dairy producers have been trying to push so many calves off the farm that demand from feedlots has nearly dried up.”