It is possible that strong demand will continue to underpin the price of milk during the
last quarter of this year and first quarter of next year The U S economy has responded
robustly to lower interest rates despite poor economic performance in many Asian
countries and Russia The U S economy may grow 3 percent in the last quarter of 1998,
resulting in strong Christmas sales That will translate into solid demand for many dairy
products as consumers eat out and entertain at home more often Dairy farmers are
finally reaping the benefits of a strong national economy
The point is many dairy producers lose site of the fact that demand for milk continues to
expand each year (see Figure) More and more consumers eat more cheese every year
And our population expands are the rate of just under one percent per year Thus the
dairy industry represents a growing industry
The current expansion in milk prices, however, is not expected to last forever. Dairy
farmers will likely expand milk production, especially next spring This factor plus
weather conditions and consumer demand will determine how far farm milk prices will
fall by May 1999 They will also determine how fast milk prices will rebound thereafter
Structural Problems with Many Family Farmers
Despite the growing demand for milk and dairy products and opportunities in the dairy
industry, family dairy farms will continue to leave the industry This is an unfortunate
trend in agriculture that has been in existence since the 1950 s Each farm continues to
produce more milk, hence increasing farm-to-farm competition. This competition
appears to be intensifying each year This, however, is a fact of life in a market
economy
My own personal experience with on farm planning is that many dairy farmers have not
adjusted their farm investments and cost structure to the realities of milk production in
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Pennsylvania’s Role In The Global Dairy Industry
(Continued from Page 2)
Demand for Milk
160,000
1 5 0,0 0 0
1 40,000
1 3 0,0 0 0
120,000
1 10,000
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Keystone Farm Show Section 1, Lancaster Farming, Saturday, January 2, 1999—Page
the 1990 s Investments per cow are still too high on many farms Many families are
operating diversified operations that yield low or in some cases negative returns on some
enterprises And most dairy producers today, even large-scale dairy operators, do not
understand how to accurately measure cost of production
What is unfortunate about this situation is that many of these family farmers are
potentially offering themselves up as the next farms to be sacrificed in the marketplace of
tomorrow Whenever milk prices get too low, the marketplace cruelly searches for
farmers that have poor financial health and performance
The good news however is that there are many dairy farm families milking under 100
cows that are taking the necessary steps to improve their profitability and ensure their
future position in the dairy industry These family farmers are questioning expensive
investments in machinery and equipment (i e harvesting equipment and fancy parlor
equipment), limiting costly enterprises (i e row cropping), and focusing on where they
make money the dairy enterprise l
1 am convinced that dairy farmers can benefit tremendously from basic business training
And many want to We developed a web site for those farmers with computers to
download free software We have developed a manual (available in January) to instruct
dairy farmers how to use Quickßooks 2 , and a computer file that can automatically set up
Quickßooks for a dairy farm Also on my web site is a Microsoft Excel spreadsheet you
can use with your computer to calculate your cost of producing 100 pounds of milk The
address for this web site is
http //www ext missouri edu/agebb/commag/dairy/tools htm
Current and Future Trends
The following represent current trends that are shaping the future of our industry
Shifting Milk Production
Milk production continues to shift from traditional milk producing states in the Midwest
to non-traditional states like Idaho, New Mexico and Arizona These states are
2 Qutckßooks is a computerized financial accounting package designed by Intuit, the makers of Quicken
Quickßooks was designed for small businesses
expanding into large 2,000-3,000 cow daily factories that keep investments per cow at
just over $3,000 per cow (land, cow, facilities, machinery and equipment), focus on the
dairy enterprise, and keep operating expenses per cwt of milk shipped at very competitive
levels. New operations of this type are also moving closer to the Midwest into places like
western Kansas and Nebraska Large-scale dairy operations are already prevalent in
Michigan and will be moving into places like Illinois, lowa and Ohio soon
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