Speer: Dairy Cows Now On Double Duty
By Nevil Speer, Drovers
September 15, 2022
The dairy industry’s productivity gains during the past several decades are truly remarkable. It’s not really a story that gets told very often; popular media regularly touts declining milk consumption in the United States. However, that does NOT mean dairy demand is waning. To the contrary, it’s robust and America’s dairy producers have done an incredible job of meeting that demand (along with facilitating growth in exports, too).
That’s occurred because of steady gains in milk production year after year – going from roughly 165B lb annually to nearly 230B lb during the past twenty years. But most significant, that’s all happened while dairy cow inventory has remained relatively unchanged. (see first graph)
However, those gains have also meant ongoing consolidation within the dairy sector. Business analyst Michael Hammer’s timeless observation portrays it best: “Increasing productivity does enable a company to lower its costs while increasing its output and that ought to be good for any business. But what is good for any business, it turns out, isn’t good for every business.” Twenty-five years ago nearly half of all dairy cows were maintained by dairies with less than 100 cows. Now jump to the latest census (2017): 55% of cows are maintained by dairies with 1000-or-more cows. (see second graph)
Commodity businesses are inherently challenging – average returns hover around breakeven. Staying in front of that reality generally requires getting bigger; economies of scale provide significant cost advantages to larger producers. For example, Zisk survey data indicate that production differences are negligible beyond 500 cows; however, getting bigger does facilitate cost savings and subsequent profitability: “…the nationwide move towards larger herd size is born out in terms of profitability.” (see third graph)
That background brings us back to the subject of BeefX...
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