A growing percentage of U.S. milk is produced by larger farms in non-traditional dairy regions, according to a report from RaboResearch.
The shift towards large-scale dairy operations is improving the competitiveness of U.S. dairy in global commodity markets and driving production increases outside the traditional dairy belt. These changes are dividing the industry along geographical lines and challenging smaller farms to alter their businesses to differentiate and find innovative ways to manage costs.
According to USDA’s 2017 Census of Agriculture report, 55% of U.S. milk cows reside on farms that milk more than 1,000 cows. This is in contrast to 20 years earlier when these operations accounted for less than 20% of the U.S. dairy herd. With extended periods of subdued milk prices, farms have looked for opportunities to better their cost management to improve margins. Expanding to a larger scale has been one of the ways farms have attempted to improve margins.
According to USDA data, farms with 2,000 or more cows face 12% lower feed costs, 20% lower operating costs and 45% lower allocated overhead than operations with 100 to 200 cows. Purchased feed and hired labor costs are higher on large farms, however the hired labor on large-scale farms would generally yield higher returns. Meanwhile, the savings that small farms realize on lower hired labor are more than offset by the opportunity cost of unpaid labor. In addition, large farms have a 17% higher yield of milk per cow.
In 2017, there were 189 dairy farms with more than 5,000 cows. The average herd size of these operations is 7,400 cows, with the largest concentration in California and Idaho, with 35 dairies in this size category.