Since 2018, the U.S. has experienced three extended periods of dairy cow liquidation. From January 2018 to July 2019, the national herd constricted by 118,000 cows; from May 2021 to January 2022, cow numbers shrunk by 140,000; and from March 2023 to the most recent August data, the cow population has fallen by 54,000 head.

Unlike the first two instances noted above, the recent decline has occurred even as a majority of the top 24 dairy cow inventory states have maintained or slightly grown cow numbers. In fact, just four states (California, Kansas, New Mexico, and Texas) have accounted for a larger decline than the entire U.S. during the past five months.

How have so many important dairy states managed to navigate the weak margins experienced throughout most of 2023 without yet reducing their herds? Though the complexity of the U.S. dairy industry and the numerous factors that make the economics of milk production different for every state make it impossible to give a simple answer to this question, the Dairy Margin Coverage (DMC) program could be playing an important role.

Consider that more than $1.2 billion in DMC payments have accrued to eligible producers since the beginning of the year. Though the four states of California, Kansas, New Mexico, and Texas have accounted for 30% of U.S. milk production this year, they have received less than 16% of total DMC payments.

This implies that the rest of the nation 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 other 46 states accounting for 70% of U.S. milk production, the revenue from DMC has made more than a small impact for eligible producers in these areas.

With difficult margins expected to persist until feed costs significantly subside or milk prices move notably higher, monitoring how much longer so many states can stave off the need to liquidate cows will be interesting. While the DMC program was never designed to fully offset extended periods of difficult financial margins, it appears to at least be helping many eligible producers remain afloat through this difficult year.

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(c) Hoard's Dairyman Intel 2023
October 12, 2023

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