A report in a national, well-respected, but not dairy-centric, publication (OK, Feedstuffs) last week suggested we might have to cull 1 to 1.5 million dairy cows before markets rebound.
Those are stunning numbers, suggesting we kill 10% to 15% of the U.S. dairy herd. After I picked my jaw back off the floor, I did what every self-respecting ag journalist would do: I started calling around to find out what the real experts are thinking.
In my three-person poll, and to a man they agreed, killing a million cows is far more than is needed. And 1.5 million is way out of bounds, which would drive milk prices into near-earth orbit and bring demand screeching to a halt.
At the same time, there wasn't a lot of consensus in my poll either.
On the low end is Ken Bailey, a dairy economist with Penn State. "If we can remove 10,000 to 20,000 cows per month above normal culling levels and get stability in production growth, we'll be fine,” he says. "With the loss of BST on the East and West Coasts, milk per cow has already slowed down.”
And cheese markets are already showing some strength, he says. Any signs to the market that production isn't growing will signal buyers they need to start buying again.
On the other extreme is Mark Stephenson, dairy economist at Cornell University. "Four hundred thousand to 500,000 cows are pretty easy numbers to come up with,” he says. "The industry is effectively in demand shock, with exports and domestic sales falling a part.
"We were exporting 10% to 11% of our supply in the last year, and we're looking at exporting just 40% of that this year. And domestic demand has been lackluster at best,” he says.
A 60% drop in export demand translates into 11 billion lb. of milk production left unsold. Assuming cows that are cull candidates are below average—says 18,000 lb./cow—suggests about 600,000 cows will have to processed through McDonalds and other burger venders. That's a lot of hamburger.
Stephenson also worries and warns that the culling—and therefore the recovery—will be painfully slow. "This is not a short-term fix. It takes a while to liquidate herds,” he says. "Lien holders have to be dealt with, auctions have to be arranged. So it will take some time to do this.
"We could see a little bump this fall, but it could be a year before we see real recovery. By the time we do, the general economy will be in a place that domestic and export demand will pick up as well,” Stephenson says.
The man in the middle is Scott Brown, an agricultural economist with the Food and Agricultural Policy Research Institute, better known as FAPRI, at the University of Missouri. His analysis suggests killing 250,000 cows will yield about $2/cwt on the all-milk price.
"I keep thinking were 3 to 4 billion lb. in excess given where we are,” he says. That would suggest we need to cull 165,000 to 225,000 cows.
The good news, says Brown, is that milk, cheese and butter prices at retail are coming down. "The income effects of the recession are bad, but we have retail prices that should encourage consumption,” he says.
"So I don't think we have to get rid of a million cows,” he says. "And whether we have some type of program, either private or government-sponsored, we have to be careful we don't go too far in the other direction.”
Culling too many cows—say a million or more—will send retail prices sky rocketing. "We're just so inelastic on the demand side,” he says. If you tighten milk supplies 10% by culling a million cows, you could greatly damage domestic demand just as it is starting to recover.
—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at email@example.com.
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