Since 2018, the United States has witnessed three lengthy bouts of dairy cow reductions. From January 2018 to July 2019, the national herd shrank by 118,000 cows; from May 2021 to January 2022, the herd shrank by 140,000 cows; and from March 2023 to the most current August statistics, the cow population shrank by 54,000 head.
Unlike the first two cases mentioned above, the latest fall has happened despite the fact that the majority of the top 24 dairy cow inventory states have maintained or slightly increased cow numbers. In fact, only four states (California, Kansas, New Mexico, and Texas) have seen a more significant drop than the whole US during the last five months.
How have so many prominent dairy states managed to avoid herd reductions while experiencing low margins for most of 2023? Though it is hard to offer a simple response due to the complexity of the US dairy sector and the myriad elements that make the economics of milk production vary in each state, the Dairy Margin Coverage (DMC) program may play an essential role.
Consider that qualifying producers have received more than $1.2 billion in DMC payments since the beginning of the year. Despite accounting for 30% of U.S. milk output this year, the four states of California, Kansas, New Mexico, and Texas earned less than 16% of total DMC payments.
This suggests that the remainder of the country has qualified for more than $1 billion in DMC payments. With year-to-date U.S. dairy cash receipts estimated in the $34 billion to $35 billion range, and the remaining 46 states accounting for 70% of U.S. milk output, DMC income has had a significant effect on eligible farmers in these regions.
With tough margins projected to endure until feed costs fall dramatically or milk prices rise significantly, it will be fascinating to see how long so many states can avoid liquidating cows. While the DMC program was never intended to entirely balance lengthy periods of low financial margins, it seems to be assisting many qualifying farmers in staying afloat during this challenging year.
