Larger herds generate lower gross returns per hundredweight of milk produced because many are in regions with lower milk prices.
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Gross returns include milk sales, plus revenues from the sale of culled dairy animals, milk cooperative dividends, and the fertilizer value of manure. In turn, costs among these small commercial dairy farms substantially exceeded estimated costs for larger farms: farms with 200-499 cows realized production costs of $20.85 per hundredweight, which were still 21 percent above the average costs realized at farms with at least 2,500 head.ĮRS also reports on gross and net returns for dairy farms. In 2016, average total costs of milk production (expressed in dollars per hundredweight of production) fell sharply as herd size expanded, from $33.54 per hundredweight among farms with 10-49 cows, to $27.77 among farms with 50-99 cows, and to $23.68 among farms with 100-199 cows. While the survey covers both conventional and organic operations, cost comparisons in this article focus on conventional operations only. ERS and USDA’s National Agricultural Statistics Service (NASS) develop a large and representative sample of dairy farms for a special dairy module of the survey, which is conducted every 5-6 years, most recently in 2016. The evidence for this finding is based on the milk costs and returns estimates produced by USDA’s Economic Research Service (ERS), which are developed from surveys of dairy farms conducted as part of USDA’s annual Agricultural Resource Management Survey (ARMS).
As a result, larger farms are more likely to realize positive net financial returns to milk production, even though their average revenues per hundredweight of milk produced are, on average, somewhat smaller than the revenues of smaller farms. While herd size is not the only factor that matters for production costs, these scale-related cost differences are important. On average, larger farms have lower production costs than smaller farms the differences are substantial and hold across a wide range of herd sizes. Such farms accounted for most dairy production 25 years ago, but their numbers are shrinking by 2017, they accounted for just one-fifth of production.Īmerican dairy farms cover a wide range of herd sizes, from 50 cows or fewer, through midsized operations of 300-400 cows, and up to larger operations with several thousand cows. While some farms in every herd size class are financially viable, small commercial farms with 10-199 cows face a challenging environment. Farms with at least 1,000 head today account for most cows and production, and farms with at least 5,000 head-nearly nonexistent 25 years ago-accounted for a sixth of all cows by 2017. Milk cows and production are moving to much larger dairy farms. Therefore, larger farms can earn profits during times when smaller farms bear losses. Large dairy operations have significant financial advantages over small- and midsized- farms, primarily because of lower average production costs per pound of milk produced.
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