The U.S. dairy industry is expected to expand slowly in coming years, driven in large part by the commercial food preparation industry and its demands for special ingredients. Milk per cow should increase about 2 percent per year with genetic management and bovine somatotropin (BST) among the hallmarks of that expansion.
Jim J. Miller, USDA dairy economist, made the predictions USDA’s ag forum. Dairy demand no longer is characterized by a consumer "standing in front of a supermarket dairy case filling a shopping cart," notes Miller. Instead, demand "is more commonly represented by a wholesale buyer buying ingredients for some type of food preparation, whether in a restaurant, industrial food plant or even a supermarket itself."
An expanding food preparation business "undoubtedly" has changed dairy demand, he says, but the direction of some of the changes "is quite unclear." Very large individual buyers for commercial food preparation have become common. And they insist on special specifications or services. That has diminished the amount available for trading in the traditional price discovery markets, says Miller.
"The emergence of a large food preparation industry has lengthened the time between price changes and full response to those changes," he says. "Food processors incur substantial cost to reformulate products and change labels. They also tend to be cautious about introducing product changes that may affect flavor or consumer acceptance and to cushion the immediate effect of changes in ingredient costs on prices of their products."
Milk production on a per cow basis will expand on generally favorable milk-feed price ratios. Large numbers of dairy farmers will continue to leave dairying, Miller predicts. Any decline in milk cow numbers, however, will be held to 1 percent or less in most years as new dairy farms are constructed or established farms expand.
In the West, Miller continues, more limited alfalfa supplies, environmental problems and fewer "promising areas" for new dairy development have hindered expansion comparable to the expansion of the 1980s. In the rest of the country, the more traditional dairy farms have been under income stress and their owners have quit the business. Most of the herd expansions have come from new "industrial" operations or operators who move from traditional farms to large operations using highly specialized labor.
"New style" dairy farms in the northern areas of the country have not developed as rapidly as expected. Relatively high returns of the last few years "have yet to accelerate producer expansion plans appreciably," he says. To move from managing only cows to managing people as well "is both daunting and highly risky for many dairy farmers," says Miller. "Once plans are carefully thought out and set, they may become very conservative about any alternation."