Dairy Farms

SIC 0241

Companies in this industry

Industry report:

This classification includes establishments primarily engaged in the production of cows' milk and other dairy products and in raising dairy heifer replacements. Such farms may process and bottle milk on the farm and sell at wholesale or retail. However, the processing and/or distribution of milk from a separate establishment not on the farm is classified in manufacturing or trade. Establishments primarily producing goats' milk are classified in SIC 0214: Sheep and Goats.

Industry Snapshot

In the late 2000s, dairy farmers, especially the smaller milk producers faced one of the worst economic downturns in U.S. history. In fact, many of the smaller dairy farmers were disappearing at an alarming rate. As many as 2,000 dairy farmers could leave the industry in 2009 alone, according to the National Milk Producers Federation (NMPF). U.S. dairy farmers watched their revenues fall from $34.8 billion in 2008 to $24.3 billion in 2009--a 30.1 percent decline. California led the nation with more than $4.5 billion of the $24.3 billion followed by Wisconsin with more than $3.2 billion. Other leading dairy farms with revenues that exceeded $1 billion in 2009 were Idaho, Michigan, Minnesota, New York, Pennsylvania, and Texas.

Dairy farming is one of the leading agricultural activities in the United States. Because of scientific advances increasing milk production as well as genetic and production-management improvements, the total number of dairy cows in the United States has been declining steadily since 1970, whereas the total output per cow has increased significantly. In 2004, taking all fifty states into consideration, the average milk production per cow was 18,967 pounds. By 2005 that number had increased to 19,576 pounds per cow, and in 2006 it was recorded at 19,939 pounds per cow. This represents a nearly 80 percent increase from 1980 figures. Those numbers increase substantially when studying only the states that are responsible for producing the majority of the dairy products in the country. The five top states for pounds of milk per cow were Colorado (23,155 pounds per cow), Washington (23,055 pounds per cow), Arizona (22,855 pounds per cow), Idaho (22,326 pounds per cow), and Michigan (22,188 pounds per cow).

The dairy farm industry underwent some significant changes during the mid-2000s, caused by changing government regulations regarding milk subsidies and environmental management, geographical shifts in dairy farm populations, increased herd size, and increased milk production per cow. In addition, the number of dairy farms was steadily decreasing while the size of the dairy farms was increasing. Because of their increasing size, the larger dairy farms do not depend as heavily on human labor as they once did. A large portion of the tasks associated with dairy farming are automated--even the milking of cows. Dairy farmers put in long hours with few days off, since the cows must be milked twice a day every day. Farmers also must keep the barns and pens cleared out, clean milking equipment, and keep track of each cow's food consumption and milk production. Most dairy farmers also plant crops to provide feed for their cattle in the winter.

Organization and Structure

Number and Size of Farms.
Every state in the country has dairy farms; however, warmer climates are not generally suited to efficient year-round milk production. In 2007, nearly 92 percent of milk produced in the United States is produced in the 23 states considered to be the nation's "Dairy Belt" (170.7 billion pounds of 186.2 billion pounds). The Dairy Belt is in the northern region, extending from New York to Minnesota, though California is the largest milk-producing state in the country. Wisconsin, a Dairy Belt state, is the second largest dairy-producing state. Wisconsin led in dairy production for many years, earning the state the title "The Dairy State," but California surpassed it in total dairy production in 1994 and has held the lead ever since. For 2006, California produced 38.8 billion pounds of milk for 21 percent of the market while Wisconsin trailed with 23.4 billion pounds for nearly 13 percent of the market. Other leading dairy states are New York, Pennsylvania, and Minnesota.

Since the 1950s, the number of farms has decreased 50 percent, and the number of farms with dairy cows has decreased about 90 percent. This is due to the shift toward larger scale, industrial dairy farms. A farm with 100 milking cows was considered big in 1950, while farms with 5,000 milking cows were becoming the norm toward the end of the twentieth century and into the twenty-first century.

As recently as 1987, more than 70 percent of the American dairy farms had fewer than 72 cows, but this large segment of the dairy farmer population produced only about 37 percent of milk sold. However, in the mid- to late 1990s the U.S. Department of Agriculture (USDA) reported that larger farms of 100 or more head accounted for 68.4 percent of the country's total dairy herd. By 2007, in contrast, 64 percent of the dairy farm's inventory came from operations with 200 head or larger. Yet, larger dairy farms are able to take advantage of the advances in technology, including fully automated milking parlors, computerized feeding systems, and genetically engineered drugs and hormones, allowing these farms to produce even more milk per head and weakening the ability of small- and medium-sized farms to compete. Many small- and medium-sized farms sell their milk to member-owned dairy cooperatives that process and distribute the milk and other dairy products.

Marketing Orders.
For purposes of administering the government milk subsidy program, dairy farmers in much of the country are part of marketing orders, which are geographic zones set up by the government during the Depression to regulate milk pricing. Farmers voted to form these orders, and the government set the minimum prices for each order that bottlers and other milk processors had to pay. In 1999 a total of 31 markets existed; this dropped significantly by 2000 to only 11 markets (due to 1996 legislation) though the gross value of receipts of producer milk only fell slightly. In 2004 the number decreased to 10 markets, where it has remained. However, the gross value of receipts of milk had increased as had the population of federal milk marketing areas.

Dairy Farming Regulations.
State and local laws regulate conditions under which milk is produced, collected, and processed because it is so easily contaminated. Most milk is sold as Grade A, when dairy farms meet strict sanitation standards. Milking machine equipment must be washed and sanitized, and the milk house and milking parlor floors must be kept clean. Farmers must also test their cattle for disease periodically, vaccinate all calves against the disease brucellosis, which affects humans, and remove sick cows from the herd. On the other hand, milk that fails to meet these standards is sold as Grade B.

Background and Development

Dairy cows have been an important part of life in America since the first English settlers arrived in Jamestown in the early 1600s. Cattle continued to move west with the settlers. Each family kept two or more cows with their "dry" times staggered, so that they would have milk year round.

As towns grew, farmers kept more animals and sold any surplus milk they had. Because milk was highly perishable, farmers could not live very far away from consumers. In the mid-1800s, as the big cities expanded, farms became further removed from consumers, and transportation of milk before it spoiled became a problem. But as more and more railroad lines were built, milk could be transported by train as far as 50 miles. Sanitation and refrigeration were a problem though, and it was not until they were dealt with that dairy farming could become a major industry.

Pasteurization, developed by Louis Pasteur in France in the 1860s, kept milk safe longer and enabled milk to be shipped farther. However, this process was not widely used in the United States until the early 1900s. Further development of refrigerated transportation and methods to retard spoilage also contributed to the growth of dairy farming.

The five most important dairy breeds in the United States in the late 1990s were Holstein, Jersey, Ayrshire, Brown Swiss, and Milking Shorthorn. Each breed has a different strength, either in quantity of production, composition of its milk, or suitability to a region's conditions. Eighty-five percent of dairy cattle in the United States are Holsteins, which produce large quantities of milk. Jerseys produce the milk richest in butterfat and protein, and they also tolerate heat better than other breeds.

During the period of 1996-1998, U.S. dairy farmers had an annual production rate of almost 72 million metric tons of milk. Throughout the 1990s the U.S. milk cow inventory steadily shrank, but milk production per cow increased. The number of dairy cows in 1998 was estimated to be 9.2 million head. In 1997 the number was about 9.3 million. In the period between 1993 and 1997, the average was about 9.5 million. Dairy products that come from milk include butter, cheese, ice cream, sherbet, frozen yogurt, and dry milk.

The United States was the largest producer of milk in 1999, with 72.6 million metric tons. India, with 36.0 million metric tons was a distant second, yet it produced its volume with more cows than the United States. This disparity in milk per cow stems from the ability of U.S. cows to yield 7.3 kilograms of milk per cow, while India's cows only averaged 1.9 kilograms per cow. Industry analysts predicted that the trend of larger dairy farms with fewer cows would persist, followed by a concentration of dairy processing as well.

The 1996 Federal Agriculture Reform and Improvement Act (FAIR) addressed a lot of concerns that had been brewing over the decades about milk price regulation, price supports, and market orders. For years, critics had demanded changes in these dairy-management policies. FAIR called for the elimination of the Milk Price Support Program (MPSP, formerly known as the Dairy Price Support Program) that took effect in 2000. The price support amount dropped from $10.35 per cwt (hundred pounds) to $9.90 per cwt over the period leading up to 2000 (which has been unchanged since). After that, the subsidy was to become a recourse loan--an inventory loan from the government--for processors who have butter or cheese in storage. The government hoped this move would get rid of the floor on dairy products. However, the price supports were extended and then renewed by the Farm Security and Rural Investment Act of 2002 (2002 Farm Act), which expired in 2007. The new farm bill was in process in early 2008 but the proposal called for the renewal of the existing price support. Also, revisions were suggested for the Milk Income Loss Contract Program (MILC) that recommends payments come from lower historical rates rather than actual milk sales. This move would increase dairy payments by about $793 million over the course of the next decade after the revised Farm Act is approved.

The 1996 Farm Act also nixed the fee assessed for maintaining the price-support program. Dairy farmers welcomed this change because, under the 1990 Farm Bill, they had to pay $.11 per hundredweight. Though not fully articulated within FAIR, the milk marketing order system was to undergo modification as well. FAIR mandated the reduction of markets from 33 orders in 1996 to just 10 to 14. In addition, the Agricultural Marketing Service (AMS) and the USDA was charged with developing and enacting a reformed milk marketing order system, which among other things, included a replacement formula for the old Minnesota-Wisconsin Price Series, where the standard for milk prices was based on the cost for producing Grade B milk in these two states. Furthermore, the 1996 Farm Act allowed The National Dairy Promotion and Research Board to use check-off revenue for international marketing. FAIR also strengthened The Dairy Export Incentive Program (DEIP) and called for the establishment of a dairy export trading company. Making the United States a more viable contender in the world dairy market, legislators hoped, would lubricate the transition from price support to market dependence.

Previously, milk prices were based on the farm's distance from Eau Claire, Wisconsin, which is in the heart of dairy country. Theoretically, the price was based on how much shipping milk from Eau Claire would cost if supplies were not available locally. Milk for drinking was worth between one and two cents more per gallon for every 100 miles from Eau Claire. Under that policy, farmers in Texas were paid more for milk than Wisconsin dairy farmers. And processors had to pay at minimum a regional price set by government guidelines. Milk has been the only commodity for which the agriculture secretary can dictate the minimum price to be paid a farmer.

The complicated system, which required 500 Department of Agriculture employees to administer and took up three volumes of the Code of Federal Regulations, was instituted in the 1930s, before refrigerated transportation was widely available. The South had often faced milk shortages because milk was perishable in the heat, and raising cows in that climate was very expensive. Southern farmers were paid a bonus as an incentive to expand. However, technology today reduces the cost of shipping milk from surplus states, such as Wisconsin, to distant destinations. Technology also has developed new options for shipping milk. For example, in the 1970s scientists devised a way to remove water from milk to make it less expensive to ship. But the federal rules made reconstituted milk more expensive than local milk, so this technology has not been pursued.

The Eau Claire rule led to an increase of dairy farming in warm regions, even though they were not efficient places to run dairy farms. While many Midwestern farmers claim they are hurt by the regulations, farmers from many other regions support the Eau Claire rule, since they fear that revocation of that rule would result in the shipment of Wisconsin milk across the country, driving thousands of dairy farmers out of business. Southern farmers especially oppose deregulation, claiming they could not afford to remain in business without price supports.

In 1995 the Basic Formula Price (BFP) was deemed a temporary replacement for milk pricing until January 2000. Though that formula is sometimes still utilized, milk prices have since been based on different calculations per their class level (Class I, Class II, Class III, and Class IV), which is derived from the milk's type of use.

While America had more milk than it needed, the budding biotechnology industry was producing a hormone that could increase milk production as much as 25 percent, which drove down dairy prices. Bovine somatotropin (BST), a natural protein found in cattle also known as bovine growth hormone (BGH), has been artificially produced in pharmaceutical labs and was approved by the Food and Drug Administration (FDA) in 1994. Farmers remained skeptical about its use and whether it would drive down prices by producing a glut of milk. Also, some consumers and consumer groups have feared that milk would be tainted if it had artificial BST. Companies producing the artificial protein said BST was present in all milk, and milk from cows treated with laboratory BST did not have any higher BST content than milk from untreated cows.

Dairy farmers were in a difficult position: they had already learned to increase milk production through better feed and breeding methods, but BST promised to further increase milk production with even smaller herds. Farmers had concerns that use of the hormone would produce a vast surplus of milk that would bring prices down. Farmers were not as enthusiastic about the hormone as the pharmaceutical companies, but farmers who wanted to stay competitive would have to give BST to their herds. Also, most countries ban the use of BST, including the European Union.

Dairy farms, as well as dairy cow milk production, continue to increase in size. In 2007 there were 71,510 operations with milk cows in the United States representing a decrease from the prior year of 4.6 percent. But, of those, the number with 2,000 or more head involved in production rose from 23.5 percent in 2006 to 25.7 percent in 2007. The shift to larger operations also has increased the average milk production per cow, as large farms tend to be more efficient, thus producing a greater percentage of milk. In 2004, taking all fifty states into consideration, the average milk production per cow was 18,967 pounds. In 2005 that number had increased to 19,576 pounds per cow, and in 2006 it was recorded at 19,939 pounds per cow.

In April 2003 milk prices were at a 25-year low, caused by an oversupply of milk in the marketplace and a reduction in government subsidies. The National Milk Producers Federation (NMPF) outlined a voluntary plan to reduce milk marketing and decrease herd sizes to tighten milk supplies. By the close of 2006, milk production was at record levels and the average 2006 price of all milk was $12.80 per cwt per the USDA, which represented a 15.5 percent drop from the previous year.

Dairy farmers were concerned about the impact of Environmental Protection Agency (EPA) regulations regarding dairy waste management systems. New requirements for managing waste were established in 2003 by the EPA, primarily that all farmers must devise a workable manure recycling plan. This was created in conjunction with the Clean Water Act for concentrated animal feeding areas (CAFO) to prevent contamination of the general water system by animal manure, which was common during significant rainstorms. In the mid-2000s researchers from the Agricultural Research Service were investigating the possibilities of controlling diet, water quality, and manure runoff by rotating the animals' access to pasture areas.

Many farms have joined the computer age, enabling farmers to keep track of food consumption and milk production to better manage their herds and their finances. Computerized systems also allowed farmers to design better feeding programs for their herds. Computer controlled trolley systems allowed some dairy farmers to deliver just the right food mix to each individual cow, based on the cow's current milk production, age, weight, overall health, and its stage in the lactation cycle. A personal computer in the farmer's home is linked with a programmable controller in the barn. Boards in the controller correspond with the various mechanical hardware in the barn. The correct amount of feed, with the correct ratios of forage (corn and hay), grain, soybean meal, and minerals, is measured out for each cow. This computerized system can make the necessary daily adjustments, as a cow's needs change daily based on its milk-producing cycle. The system then delivers the custom-mixed feed to the appropriate cow. Before this system was developed, farmers had no easy way to custom-design a diet for each cow and deliver that diet as much as three times a day. Computers also allow farmers to keep track of milk production.

Current Conditions

In the late 2000s, dairy farmers, especially the smaller milk producers faced one of the worst economic downturns in U.S. history. U.S. dairy farmers watched their revenues fall from $34.8 billion in 2008 to $24.3 billion in 2009--a 30.1 percent decline. Dairy farmers faced particularly challenging times, caught between rapidly falling milk prices and historically high feed costs.

As milk prices fell below production costs, the government passed legislation totaling $350 million, in which $290 was expected to be distributed to U.S. dairy farmers. Meanwhile, "Economists estimated the industry would need to remove between five and six billion pounds of milk, the production of approximately 250,000 cows, to boost milk prices," cited from the Progressive Dairyman in 2009.

In 2009 there were 65,000 operations with milk cows in the United States, however, compared to 97,460 in 2001 that illustrates a decline of 33 percent. While cow operations were on the decline, milk production grew 15 percent from 165,332 million pounds in 2001 to 189,320 million pounds in 2009.

Even though the number of milk cow operations has fell since 2001, the total number of operations with 500 or more head of milk cows has grown by 20 percent to 3,350 in 2009 compared to 2,795 in 2001. Of the estimated 9.20 million head of milk cows on farms in 2009, milk production declined slightly to 189 billion pounds with the average cow producing 20,576 pounds, up 181 pounds over 2008. The leading states for pounds of milk per cow were Arizona (23,382 pounds per cow), New Mexico (23,269 pounds per cow), Washington (23,344 pounds per cow), Colorado (22,930 pounds per cow), Idaho (22,432 pounds per cow), and Michigan (22,180 pounds per cow).

Industry Leaders

According to Gale Cengage Learning's Business & Company Resource Center, the industry leader was Dallas, Texas-based Milk Products L.P. with $2.28 billion in 2006 overall sales (including other types of products; Hoover's indicated 2007 sales as $124.3 million for the dairy segment). Turner Dairy Farms of Pittsburgh, Pennsylvania was listed second with 2006 sales of $90.7 million with about 165 employees. Finally, Chiefland, Florida-based White Construction Company was third with $83.1 million in 2006 sales with one segment of business including Hilltop Dairy. Many smaller dairy farms have been in the same family for a few generations, but very few new family farms have been started in recent years because the costs of land, equipment, and a dairy herd are prohibitive. The increase in larger dairies is changing the landscape of dairy-related employment, because the larger companies are more equipped to offer better salaries and benefits.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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