In 2010, dairy farmers received some much-needed relief from the devastating milk prices of 2009. At its low in 2009, the U.S. all milk price hit $11.30 per hundredweight and averaged $12.83 for the year. For 2010, the U.S. all milk price averaged $16.30, a $3.47 improvement over the previous year. The Wisconsin all milk price averaged $16.18, up $3.10 from 2009. The Wisconsin price saw a smaller gain because the Class IV milk price was higher than class III during most of 2010. This provided a relative price premium to regions with high Class IV and fluid milk utilization—most of Wisconsin’s milk is used for class III (cheese) products.
Dairy producers responded to the extraordinary high milk prices of 2007-08 by adding cows. The resulting increased milk production was a logical market response to those high prices, but unfortunately, the added milk hit the market just as the world slid into economic recession. The milk price collapse in 2009 was the result of high domestic milk production coupled with a decline in domestic and export demand for dairy products. It was the first year since 1991 that we have seen a decline in commercial disappearance of dairy products.
The milk price was so low during 2009 that for many producers, the variable costs of production were higher than the milk price. In fact, many producers who buy all of their feed found that in several months, their milk price did not cover their feed costs. If a dairy farm were a factory, under these circumstances the only rational response to such market signals would be to shut down until prices recover. With milk cows, it’s not so easy.
Some producers did go out of business. But many more producers took a hard look at each cow in their herds to see if she was covering her individual costs. As a result, a large number of cows were culled, most of them from herds in western states, where purchased feeds comprise a much higher share of variable costs. Moderating milk prices in 2010 stopped this downsizing and actually caused cow numbers to increase somewhat. The average annual dairy cow herd in 2010 is estimated at 9.1 million head, 1 percent smaller than in 2009. The other factor determining the volume of milk produced is production per cow, which is heavily influenced by feed costs. Feed prices began to increase in 2007, following a rise in corn prices tied to expanded demand from ethanol plants. Feed prices hit a peak in 2008 and, although they moderated, they seemed to find a new, higher plateau. Milk per cow showed only modest gains from 2007 through 2009. However, genetic gains continued to accrue over that period, and when milk prices increased in 2010, and returns over feed costs improved, so did milk per cow. U.S average milk per cow will average near 21,150 pounds, up 2.8 percent from the 20,576 pounds in 2009.