Main Factors for the Dairy Industry’s Success

There are four key factors that determine the success of the dairy industry. The most important success factor is the price received for raw milk. These prices are determined generally by downstream dairy processors and the government. An increase in milk prices means farmers are able to allocate more of their resources to milk production, while a fall in prices directly affects a decline in revenue. Milk prices are expected to increase in 2017, providing numerous opportunities to the industry.

The next success factor is the demand for dairy product production. Raw milk is a key ingredient in products like cheese, ice cream, and yogurt. This means that a rise in demand for dairy products will increase the amount of milk used in dairy processing. The demand for dairy product production is also expected to rise in 2017.

The price of feed is also a determining success factor for the Dairy Industry. Purchasing feed for livestock makes up more than half of the cost of milk production. In the past five years, the rise in feed costs have reduced the income for many dairy farms; however, feed costs are often passed on to downstream markets resulting in an increase in milk prices. As previously stated, an increase in milk prices means higher revenue for dairy farms.

The final success factor relies on per capita dairy consumption. Milk and many dairy products are considered dietary staples in the United States. Per capita consumption fluctuates very marginally and mostly depends on population growth. Consequently, demand for dairy farms remains stable and is expected to increase in 2017.

Why Has the Dairy Industry Seen Decline in Recent Years?

The price of raw milk has been extremely unstable from 2012 to 2017. In 2014 the price of milk rose 19.4% to a period high. However, just a year later in 2015 it dropped 28.8% causing revenue to decline 28.4%. In 2016, revenue took another hit due to an oversupply of dairy products and dropped to a meager 6.2%.

4 Reasons Why the Dairy Industry is Set to Expand

    1. Milk prices have been extremely volatile for the past five years. Dairy farms have been forced to adjust their production levels in response to the price drop of milk. Revenue is projected to begin stabilizing in 2017. IBISWorld expects revenue to rise 4.5% to $36.2 billion in 2017.
    2. The quest to find new dairy export markets has been successful, growing the Dairy Farms Industry exponentially. The push of US exports has caused countries that traditionally imported dairy products from other countries to buy from the US. Part of this success can be contributed to the creation of more durable cheese products which ship more effectively.
    3. The Dairy Farms Industry will continue consolidating in the next five years. Large farms save on labor and overhead costs per additionally bred cow, they will likely try to save costs by merging together. This consolidation of dairy farms means fewer farms but higher levels of production. As companies reduce costs through consolidation and profit margins increase, employment will stabilize. By 2022, employment is expected to grow at an annualized rate of 1.0% to 150,872 workers.
    4. Although organic production accounts for only 3.0% of raw milk sales, it has grown at alarming rates in the past decade. Controversies in the Dairy Industry such as the injection of recombinant bovine somatotropin to induce higher milk production into cows, coupled with a general emergence of consumer morality has made organic and humanely run dairy farms an appealing option to many. The demand for organic milk often greatly exceeds the supply, allowing producers to charge higher prices for organic milk. IBISWorld anticipates that the demand for organic milk will continue to grow as consumers become more conscious of their health.Related: Dairy Industry Slidesha

What is a Pasture Lease?

A pasture lease is a contract where a landowner permits a tenant to graze livestock on their property. The tenant will typically pay the landowner a fee in exchange for the use of the land. Pasture lease rates can be determined by a number of factors, such as the market value of the grazable forage resource compared to the rates of other grazing leases, the anticipated income compared to the costs and returns, and the cost of alternative feeds.

Why Would a Farmer Need a Pasture Lease?

A pasture lease can provide a way to start or expand a livestock operation without needing to purchase land. The significant costs of entering the agricultural industry often pose a problem, making leasing land for cattle grazing a viable option. Recent statistics show that the average age of the American farmer is 58 years old. Leasing land may be the solution to this problem by allowing younger farmers to begin their agricultural careers without purchasing land.

What are the Benefits of Leasing Land for Cattle?

There are many benefits to leasing your land for grazing. First and foremost, it serves as an additional source of income. A grazing lease also allows the landowner to ensure care for the property by another, which avoids many of the expenses and physical efforts otherwise required in maintaining property. Another fantastic attribute of leasing farmland are the tax benefits. Most states use an alternative form of calculating property taxes for agricultural land. While normally taxes owed are based on the fair market value of the land, property taxes in a pasture lease are based on the potential productive value that can be generated through agricultural practices.