The Trends Are Clear

Published on: 10:53AM Jul 30, 2010

Talk about poor milk prices has dominated the dairy industry for the past 18 months, so it’s worth pointing out some of the longer-term and bigger-picture economic trends in dairy farming, courtesy of this latest report by USDA’s Economic Research Service.

The new report (entitled “Structure and Finances of U.S. Farms: Family Farm Report”, and based on a data collected in 2007) reviews the full spectrum of farming in the U.S., and repeats a mantra familiar to most of us who defend agriculture when talking to consumers:

Most U.S. farms—98 percent in 2007—are family operations, and even the largest farms are predominantly family run.

So that’s further corroboration of the fact that there is not an equals sign between being a big farmer, and being a “big bad corporation” – which is most typically defined as the opposite of a “family farm.” 

What’s also interesting is that from a dollars and cents perspective, the USDA is defining a large scale farm as one that sells more than $250,000 of products a year (see the report summary’s first page for how they distinguish between small and large – the arbitrary dividing line is a quarter million in sales).  What’s ironic about that definition is that just about every dairy farm, even in a year of low milk prices, will be defined as “large.” 

Here’s the math on that:  with an average all-milk price of $13, you would need fewer than two million pounds of milk production to reach that threshold, which is the output of a 90-cow dairy.  In a year when average prices are higher, which will be 2010, an even smaller farm would fall into that category, using that same income threshold.  And that of course is just measuring milk output, not any sales of beef or crops. 

Now, here are a couple of other sobering, if hardly newsworthy, observations from the ERS report:

Large-scale family farms and nonfamily farms account for 12 percent of U.S farms but 84 percent of the value of production. In contrast, small family farms make up most of the U.S. farm count but produce a modest share of farm output.

Small farms are less profitable than large-scale farms, on average, and their operator households tend to rely on off-farm income for their livelihood.

RE point 1:  Just 12 percent of farms sell more than $250,000 worth of product, but because dairy is a high-value commodity, that pushes even modest-sized farms into USDA’s large category, and those generate most of the U.S.’s agricultural output.

RE point 2: If you look at the chart on the top of page 11 of the full report, you’ll see that at least in 2005, the largest dairy operations enjoyed a significantly larger cost of production advantage when compared to the smallest farms.  What’s also worth considering, of course, is that in 2005, we really hadn’t seen the run-up in feed grain costs that started in 2007, and while the trend has moderated for now, it is still part of the “new normal” of livestock production.  So this data may already be irrelevant in light of other economic trends driving up corn and soy prices. 

What hasn’t changed are the trends toward fewer, but smaller farms, and the continued family ownership of those operations.