Dr. Mark Armfelt, DVM, DABVP, Technical Service Representative, Monsanto Dairy Business
"Doc, if I implement your suggestion, I will put more milk on the market and that will lower milk price. What good does that do me?" This is a question I have heard many times over the 23 years I was in practice and the 6 years I have worked in industry. The change we are discussing might be 3X milking, long day lighting, or use of Posilac® (Monsanto Dairy Business, St. Louis, MO). Let's take a closer look at what implementing one of these practices means for the dairy, as well as its effects on milk price and our industry.
First, let me acknowledge that when a dairy farm implements any of the changes mentioned above, they do put more milk in the bulk tank and more milk on the market. That also holds true for other production enhancing practices, such as feeding balanced rations, cooling cows in summer, selecting superior genetics, and many other practices we take for granted every day. I believe that more milk per cow is a good thing for that dairy farm.
Everyone knows the number of dairy farms in the country is declining. When I was a senior in high school, Neil Armstrong walked on the moon and there were 10 times as many dairy farms in the country as there are today. If you are in the dairy business today, "Congratulations", you have beaten some significant odds. Dairy farms that have survived and thrived are farms that simply have money left in the checkbook at the end of the month. And more is better! To quote Dr. John Fetrow at the University of Minnesota, College of Veterinary Medicine, this can be accomplished in two ways. "First, make more milk. Second, cut expenses if that can be accomplished without a loss in production." I know this is a little bit oversimplified, but it holds true a vast majority of the time.
When a dairy farm increases the amount of milk they sell from each cow, a smaller percentage of their milk check goes to pay monthly bills and more is left for discretionary spending. That is and always will be good for that farm, if they want to stay in business. If he or she chooses not to implement my suggestion (e.g. does not sell the extra milk and the milk price does not change), it merely puts that farm at a disadvantage in the market place. As we see in Figure 1, the amount of milk per cow has increased at the rate of about 250 lb per cow per year for the past 45 years. Milk price has fluctuated up and down in spite of that constant increase.
Figure 1. Changes in milk production per cow, genetic gain, and Class III milk price from 1959 to 2004 (Cady, 2005).
Since milk is sold into a simple supply and demand market, we have to look at both sides of this equation. First, let's look at the supply of milk. If more milk per cow does not set the price of milk, what does? I submit the answer lies in how many cows are in production. This is determined by how dairy farmers respond to milk prices.
When the price of milk is $17.00/cwt, most dairy farmers I work with will keep some cows in production that they would sell if milk were $12.00/cwt. Typically, these cows are low producers, not bred, have a higher somatic cell count, or for some other reason will soon be culled. When milk price is high, the dairy farmer is willing to keep cows in the herd a while longer to capture the additional milk at high value. When dairy farmers do this, there is an increased amount of milk going into the market. When milk volume increases to the point whereby we are oversupplying the market by about 1%, the milk price goes down. When the milk price goes down, dairy farmers will sell those marginal cows, and the supply finally goes below demand and milk price goes up, and the cycle starts again. It is changes in cow numbers that determines milk price.
Figure 2. Changes in numbers of cows and milk price from 1998 to 2006 (USDA, NASS, 2005).
Figure 2 provides the all-milk price as compared to changes in cow numbers. The average decrease in cow numbers during the last 10 years is about 0.5% annually, indicated by the dark line in Figure 2. We see a very strong inverse relationship between milk price and cow numbers above and below that line. According to Peter Vitaliano, Vice President, Economic Policy and Market Research, National Milk Producers Federation, the primary reason the all-milk price did not fall as dramatically as one might expect when cow numbers rose in 2005 was a 3.7% increase in consumption that year.
We must recognize as well the importance of the demand side of the equation. There are great resources going into research and development of new dairy food products which are attractive to diverse consumer groups. This includes specialty cheeses, on-the-go snacks like yogurt in a tube, and new milk-based sport drinks. The nutrition and health advantages of dairy products for the consumer are becoming better documented and will also help overall consumption trends.
Fifty years ago, there were 12 million cows in the country; today there are 9 million. Total milk consumption has increased almost 50% in those 50 years, and today's dairy farmers are meeting that demand with 25% fewer cows! The increases we have seen in milk per cow have helped today's dairy farmer compete in a global economy and have softened the impact of the dairy industry on the environment.
What happens when dairy farmers make good decisions to increase the amount of milk produced by each cow? It helps the individual dairy farm's profitability, keeps them competitive in a consolidating industry, and reduces the farm's impact on the environment. That is good for the dairy farm, our dairy industry, our end consumers, and the world.