All Signs Point to Accelerated Dairy Herd Expansion

01:29PM Jul 31, 2014
( )

After years of heavy culling, milk herds are in great shape, but a tighter-than-normal heifer supply is constricting fast growth.

All signs point to accelerated expansion in the dairy herd despite a tighter-than-normal heifer supply.

As of July 1, 3.9 million heifers were available to enter the U.S. milk herd, according to USDA’s semi-annual Cattle report released late last week. Excluding missing 2013 data, which was not released due to last year’s sequester, heifer supplies have fallen to six-year lows, while milk cow inventories are now at a six-year high at 9.27 million head, up 68,000 head since bottoming out in November 2013, according to USDA data.

"After years of heavy culling, milk herds are in great shape, but heifer supplies are not large enough to allow producers to expand as quickly as they would like," says Sarina Sharp, agricultural economist with the Daily Dairy Report, Chicago, Ill.

To subscribe to the Daily Dairy Report, click here and click "register."

The number of heifers available for replacement will gradually increase moving forward, but demand for heifers will remain high. Holstein springers last week were bringing between $2,000 and $2,950/head at a livestock auction in Turlock, Calif.

"Producers are competing fiercely for heifers, so prices will remain high," says Sharp. "It is clear that dairy farm profit margins are high everywhere, and producers are either trying to expand or are paying down debt, with the latter particularly true in the West."

Last year, weak dairy farm margins and strong beef prices caused a steady flow of young heifers to feedlots. "Many dairy heifers went to slaughter without ever producing a drop of milk," notes Sharp. "Last year’s slaughter of heifers contributed to today’s diminished supply, but the reduction is only temporary, because the economic incentive to sell heifers to the beef industry dried up near the end of last year."

Today producers are likely culling their heaviest, low-production cows when they bring heifers into the herd. Heavy cull cows are currently bringing around $1,600, about $600 short of the cost of a new, quality heifer, according to Sharp’s calculations using U.S. national average prices. By comparison, producers probably spent about $1,000 or more net of their beef-cull revenue to purchase a heifer in 2008, when dairy exports were booming and beef prices were relatively low.

According to last week’s Cattle report, the July 1 beef herd was the smallest since USDA began tracking it in 1973. Beef cattle inventories fell 3% below 2012 levels, beef cow inventories were 3% lower, and beef heifer inventories dropped 2%.

"The beef industry has been decimated by years of high feed costs during the ethanol era followed by more than three years of severe drought in the southern plains," says Sharp. "Beef supplies will only get shorter as the industry tries to rebuild, because producers will have to hold heifers and cows back from slaughter in order to expand."

Lower feed costs, an ongoing tight beef market, adequate heifer supplies, and high milk prices all point to strong dairy farm margins leading to accelerated expansion in the milk herd.