This week, USDA’s National Agricultural Statistics Service released its monthly Milk Production report, showing yet another annual decline in the number of licensed dairy operations in the United States. After many years of depressed prices, some dairy farmers faced an extremely tough year as the industry struggled with a global pandemic, negative Producer Price Differentials and Federal Milk Marketing Order de-pooling while others enjoyed near-record milk prices due to volatility in cheese prices (More Negative PPDs and De-Pooling Reignite Federal Milk Marketing Order Debate). This year-over-year decline in the number of dairy operations continues a long trend of farmers deciding to exit the dairy business. Since 2003, the U.S. has lost more than half of its licensed dairy operations, now just shy of 32,000 dairy operations.
Dairy Herd and Milk Production
U.S. dairy farmers enter 2021 still in a state of flux following the disruptions caused by COVID-19 throughout 2020 and uncertainty on how new food assistance programs may impact milk and dairy commodity prices. USDA’s Milk Production report showed that annual milk production in the United States in 2020 was 223 billion pounds, increasing just over 2% from the 218 billion pounds produced in 2019. In early 2020, the dairy price environment was very favorable, and despite the craziness of the pandemic, milk-feed price ratios throughout much of 2020 were favorable for dairy herd expansion. However, the rising price of corn and soybean meal prices that began in late 2020 are likely to carry through 2021 as higher feed prices, which will be particularly tough for milk producers as milk prices are trending lower. While the total milk cow inventory at the end of 2020 was the highest since 1995, herd expansion is likely to stop this year and the cow inventory could potentially decline. In addition to a higher cow inventory at the end of 2020, the January cattle inventory report showed a decline in heifers being retained for milk cow replacement. The replacement heifer as a percentage total milk cows rate sits at 48.8%, the lowest level since 2009. Dairy cow slaughter numbers did not significantly spike recently, meaning that the likely milk cow inventory decline will be driven by fewer additions through replacement heifers rather than liquidation of the current herd.