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Income over feed cost updateIncome over feed cost update

Will consolidation in the dairy industry bring more slaughter cows to market?

Nevil Speer

February 16, 2018

2 Min Read
Income over feed cost update

There has been lots of chatter in recent months about profitability in the dairy industry. Many operations are struggling with cash flow issues as milk prices remain challenging – especially compared to the strong prices that occurred in 2014. Anecdotally, many are predicting more consolidation in the coming year. 

This week’s graph highlights how little has changed in terms of gross profit over the years. The illustration highlights daily income over feed costs available to the dairy producer, based on 65 pounds of milk per cow per day – roughly equivalent to a 20,000-pound rolling herd average. Despite ups and downs, the data reveal that gross profit seemingly keeps regressing back to an $8 mean.  

Accordingly, how does a dairy operator improve overall profitability in light of that trend? The only way to squeeze out bigger margins amidst never-changing milk margin is to get bigger. Consolidation has occurred because of the consistent income-over-feed-cost trend. Typically, expanding the operation enables an operator to take advantage of economies of scale. 

Simultaneously, that consolidation generally enables producers to obtain better cows while also implementing better knowledge management (e.g. ready access to consultants, etc.…) That has meant improved productivity over the years. The trend of more milk with stable cow numbers is an enduring one. Total production in 2017 marked a new record at 216 billion pounds. All that occurring with about 9.35 million cows. In fact, you have to go back 20 years to find an inventory of 9.5 million cows. 

However, as Michael Hammer (Fast Company, 2002) points out, “Increasing productivity does enable a company [or an industry] 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.”  With all that in mind, how do you foresee the dairy industry transforming in 2018? Will consolidation continue? What impact might that have on the beef industry? Leave your thoughts in the comments section below. 

Nevil Speer is based in Bowling Green, Ky., and serves as vice president of U.S. operations for AgriClear, Inc. – a wholly-owned subsidiary of TMX Group Limited. The views and opinions of the author expressed herein do not necessarily state or reflect those of the TMX Group Limited.

About the Author(s)

Nevil Speer

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY.

Nevil Speer has extensive experience and involvement with the livestock and food industry including various service and consultation projects spanning such issues as market competition, business and economic implications of agroterrorism, animal identification, assessment of price risk and market volatility on the producer segment, and usage of antibiotics in animal agriculture.
Dr. Speer writes about many aspects regarding agriculture and the food industry with regular contribution to BEEF and Feedstuffs.  He’s also written several influential industry white papers dealing with issues such as changing business dynamics in the beef complex, producer decision-making, and country-of-origin labeling.
He serves as a member of the Board of Directors for the National Institute for Animal Agriculture.
Dr. Speer holds both a PhD in Animal Science and a Master’s degree in Business Administration.

Contact him at [email protected].

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