U.S. Dairy Farm Expansion Unlikely for Now
U.S. dairy producers continue to send large numbers of milk cows to the nation’s packinghouses and that’s unlikely to change in the near future. Even though milk prices have started to increase, the nation’s beleaguered dairy producers don’t have much of an appetite yet to expand their herds, according to Sarina Sharp, analyst with the Daily Dairy Report. “Some dairy producers have taken the opportunity to sell out as their cows and facilities have become more valuable, while others will be slower to react to rising milk prices,” she says.
Last year, the dairy cow cull rate hit 33.5%, higher than it was in 1986, the year slaughter hit an all-time high of nearly 3.6 million head. While the number of milk cows slaughtered last year fell well below 1986’s record-high, Sharp notes that last year’s cull rate was actually higher than 1986’s 33.4% rate. In fact, Sharp says that last year’s cull rate was the third highest ever, behind only 2012 and 2013.
“In 1986, the dairy industry was plagued with oversupply, and the government paid producers to sell out and send their entire herds to the packinghouse,” Sharp notes. “Under immense financial pressure and with the promise of a government payment, dairy producers loaded milk cows onto beef trucks in droves.”
This year’s cull rate could reach an all-time record high when the final months of data are recorded. “For the first 41 weeks of the year, slaughter was 3.2% ahead of last year’s pace, which was an increase of 78,000 head. Even if slaughter volumes were to drop below year-ago levels in the final weeks of the year, the annual cull rate could easily top 34%,” Sharp notes.
While on-farm margins have improved substantially over the past several months, slaughter has not yet shown any signs of abating. Excluding 1986’s record-high rates, this year’s weekly slaughter volumes have either matched or exceeded the previous record highs in 16 out of the first 41 week of the year, Sharp notes.
“The industry cannot sustain this rate of slaughter and maintain the dairy herd, which is why there are 123,000 fewer milk cows than there were at the recent peak in January 2018,” Sharp says. “Even rising prices have not cultivated a widespread appetite for expansion. Some producers will surely add cows, and almost all will try to boost milk yields. But for a significant minority, today’s higher milk prices represent an opportunity to make a graceful exit.”
Over the past couple of years when margins were depressed, Sharp says that many producers cut costs by investing less in raising replacement heifers. “Cull rates that are still high coupled with a smaller heifer supply suggest that the U.S. dairy industry is not poised to expand at a rapid pace despite several months of much higher milk prices,” Sharp concludes.