Size matters – Production costs on US dairy farms

Source: USDA-ERS 2018

With about 100 million tons of milk production in 2017 the US is the second largest milk producer in the world behind the EU. To be competitive in the world marked the costs of production play an important role. The USDA publishes these costs on an annual base which leads us to have a closer look on these numbers.

The USDA differs farms in six groups: <50 cows, 50 – 99 cows, 100 – 199 cows, 200 – 499 cows, 500 – 999 cows, >999 cows. While most farms are located in the group with less than 50 cows, more than half of the cows are located in the groups between 500 – 999 cows and more than 999 cows. But not only the number of cows increases from group to group. Also the milk yield climbs up from 6.969 kg/a (<50 cows) to 10.440 kg/a (>999 cows) and increases with the farm size.

It is not a secret that economies of scale matter all over the world and in every kind of farm-ing. Especially in dairy farming it is a major goal to keep the costs low while milk prices are fluctuating. In the US large farms produce milk for half the costs of small farms. While a farm with less than 50 cows produces milk for about 1,05 $/kg a farm with more than 999 cows milks for 0,44 $/kg.

There seems to be a big chance to reduce costs in labour, machinery and buildings due farm size. – these overhead costs decrease about five times on larger farms compared to small farms. On the other hand, the opportunity of reducing feed costs and other operational costs is relatively low. Compared to the farms with less than 50 cows farms with more than 999 cows only reduce their costs by 28%. In this farm size purchased feed is more and more im-portant than on smaller farms because it is simply not possible for most farmers to grow all of their feed by themselves.

However, milk production in 2016 was unprofitable for both large and small farms. A look at the last years between 2010 and 2016 shows, that dairy farming was only profitable in 2011, 2012 and 2014 for the largest farms but not a single year for small farmers.

For more information please contact

hauke.tergast@thuenen.de