Trend for lower dairy cow numbers continues after challenging 2023

MADISON, Wis. — A challenging year in 2023 has resulted in dairymen reducing the number of dairy cows in herds.

“During 2022, there was almost a flat number of cows throughout the majority of the year and as we got to 2023 the numbers started trickling lower and that trend has continued,” said Leonard Polzin, dairy markets and policy outreach specialist at the University of Wisconsin-Madison.

“Our cow numbers aren’t outside the historical range, but we are starting to see the trend in lower cow numbers through this year,” said Polzin during a webinar hosted by Hoard’s Dairyman.

“We saw a slight drop-off of milk per cow in 2022, but our dairy herd is milking quite well,” he said. “We are on track to be slightly above where we were last year for milk per cow.”

The total U.S. milk production reflects the lower cow numbers.

“In 2023, there was less total milk production in a number of months than 2022, but we are still above where we were a few years ago,” the dairy specialist said. “The market is signaling that we are long on milk, so we need the market to clear enough product to keep production levels up.”

One thing that is quite interesting is milk components, Polzin said.

“Milk components have been up in value since 2010 and this year is no exception,” he said. “Our milk fat test for the national herd has been increasing year over year and now it is at 4.32%.”

Dairymen are getting better at feeding their cows and genetics are also contributing to the increasing milk components, Polzin said.

“As producers respond to market incentives to produce components, I think we’re going to see this increasing trend,” he said.

The protein test hit 3.41 % in November 2023.

“For every month in 2023, the protein test was above the previous year,” Polzin said. “We’re getting very efficient at producing milk.”

For the prices of milk, the Class III price consists of cheese and dry whey.

“Total cheese production in 2023 month over month is close to where we were in 2022,” Polzin said. “It looks like cheese factories are running at capacity and we’re looking at new dairy processing coming on line through 2024, 2025 and a bit into 2026, so that means total cheese production will be increased.”

In 2022, there was quite a large increase in inventory of cheese in cold storage.

“For 2023, we’re running on trend and slightly above at the moment, so I think there’s ample inventory,” Polzin said.

“Exports of cheese are a bit weaker than they have been previously and how much product we’re moving outside of the U.S. border will have an impact on prices so we have some work to do to catch up,” he said.

“One good story in 2023 was the total domestic disappearance of cheese has been increasing, especially in the last few months,” Polzin said.

“We have been going through some of the whey inventory as we’re within a normal range at the moment,” he said. “Exports are below where we were the last two years, but there is a decent uptick in domestic disappearance so if we can continue that trend that will be nice to see.”

The Class IV milk price includes butter and nonfat dry milk.

“Butter production was solid all year,” Polzin said. “We saw a slight uptick in total butter production in 2023, but even with the increased production we still saw some good prices so that was a silver lining for the industry.”

The production of dry skim products decreased in 2023.

“Exports are down from where we’d like to see them and so is our domestic disappearance,” Polzin said. “Butter looks to be the one carrying a lot of the Class IV prices.”

The top export markets over the past five years for U.S. dairy products are Mexico at 25%, Canada 12% and China 8.6%.

“Over one-third of our product goes to all of the Asian markets,” Polzin said. “There is increasingly uncertainty in China for where they are buying so there is a lot of possibility that their buying won’t be as strong as we’ve seen before.”

For U.S. dairy farms, the specialist said, there can be almost a $10 spread in cost of production.

“A dairy farm could have a $16 to $20 per hundredweight cost of production and that cost could be $5 above or below that at a farm right down the road,” Polzin said.

“For the vast majority of producers, 2023 has been a challenge so hopefully 2024 won’t be as bad,” he said. “We need to see a change on the demand side in order for the story to paint a good picture in the other direction.”

Coming off 2022 when prices had been good, there was a decrease in operating loans in 2023 for dairymen, Polzin said.

“That’s the question, if producers will be in a cash crunch as we get to this spring or if there’s ample working capital to take care of some of the input costs,” he said.

Interest rates are a big part of increasing costs for dairymen.

“With operating loans at 8%, that changes the math especially for operations that depend on a larger operating note,” the specialist said. “The average interest expense across different farm sizes for 2022 was 86 cents per hundredweight.”

Polzin predicts 2024 will be a tight year for dairy operations.

“I don’t expect milk prices will have a huge amount of upside,” he said. “There are a lot of pressures that will dictate what is going to happen.”