A New Era of Dairy Price Cycles: Structural Change Ahead in the Dairy Industry

October 2018 -

 

Key Points

  • Dairy farm consolidation has ushered in a new era of muted price cycles and sustained periods of low pricing, creating challenges for smaller dairy producers with higher cost structures.
  • Three-year cycles beginning in the late 1990s drove an era of consolidation where large farms with economies of scale could better withstand price troughs. Since the last seasonal peak in 2014, price cycles in the dairy industry have been longer, deeper, and with less volatility.
  • Dairy farms with more than 999 cows now comprise nearly 50 percent of the dairy industry, up from only 29 percent the decade prior. With farms of more than 1,999 cows enjoying the greatest consistency in profitability, large-scale farms are in the best position to survive extended periods of low milk prices.
  • While smaller farms have trouble competing with large farms on a cost basis in the commodity milk market, they may find opportunity to add value in premium or niche markets.
  • Cooperatives may best serve their members who operate smaller farms by investing in processing assets or branded products which can produce counter-cyclical returns to their membership. While climbing the value chain poses unique challenges for coops accustomed to competing in commodity markets, the risks of maintaining the status quo may be even greater.

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