1. Overview of U.S. and Michigan Dairy Industries Dr. Craig Thomas Michigan State University Extension Dairy Educator Sanilac, Huron, Tuscola, St. Clair, Lapeer, Genesee, Macomb, Oakland & Saginaw Counties

2. How Milk Is Sold In The U.S.  Unit of sale: Dollars per hundredweight (cwt)  1 cwt = 100 pounds  1 cwt = 12.0 gallons (8.33 lbs/gal)  1 cwt = 45.44 liters  1 cwt = 45.36 kilograms 2

3. How Milk Is Sold In The U.S.  Method of sale:  Farmer to farmer-owned cooperatives (e.g., Michigan Milk Producers Association, Dairy Farmers of America)  Farmer to processors (e.g., Dean Foods)  Farmer to consumers 3

4. How Milk Is Sold In The U.S. ~90% of total U.S. milk marketed 4

5. U.S. Dairy Farm Data  USDA 2011 U.S. data:  Total cows: 9.194 million  Total dairy herds: ~53,000 (licensed)(~173 cows/herd ave.)  Total milk production: 196.245 billion pounds (89.2 billion liters; 89.0 billion kilograms)  Average milk price: ~$20.14/cwt ($0.443/liter; $0.444/kg)  Total milk income: ~$39.5 billion ($4,335/cow)  Average milk/cow per year: 21,525 lb/cow (9,782 liter; 9,764 kg) 5

6. U.S. Dairy Farm Data Apr-2012 9,272,000 6

7. U.S. Dairy Farm Data 7

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11.  USDA 2010 U.S. data:  500+ cow herds: 5.4% of all herds  500+ cow herds: 56.7% of all dairy cows  500+ cow herds: 61.0% of total milk production U.S. Dairy Farm Data 11

12. U.S. Dairy Farm Data (total milk production) 12

13. U.S. Dairy Farm Data (milk per cow) 13

14. U.S. Dairy Farm Data (gross income per cow) 14

15. U.S. Dairy Farm Data (gross income per cow) 15 Michigan 2004-2011 #1 in gross income per cow

16.  USDA 2011 Michigan data:  Total cows: 366,000  Total dairy herds: 2,186 (average herd size = ~167 cows)  Total milk production: 8.48 billion pounds (3.85 billion liters; 3.85 billion kilograms)  Average milk price: ~$21.39/cwt ($0.471/liter; $0.471/kilogram)  Total milk income: ~$1.813 billion Michigan Dairy Farm Data 16

17. Michigan Dairy Farm Data 17 22.4% increase since 1999

18. Michigan Dairy Farm Data 18 57.3% increase since 1998

19. Michigan Dairy Farm Data 19

20. ~51,000 Cows ~73,000 Cows ~69,000 Cows ~46,000 Cows ~66,000 Cows Michigan Total 366,000 Cows ~85% of Michigan dairy cows are in 5 major milk sheds

21.  USDA Michigan data:  Total farms (all types): 55,000 (2009)  Land in farms: 10,000,000 acres (4.05 million hectares)  Average value per acre: $3,750 ($1,518/hectare)  Average milk price (2011): ~$21.39/cwt ($0.471/liter; $0.471/kilogram)  Total milk income (2011): ~$1.813 billion Michigan Farm Data 21

22. Michigan Farm Data 22

23. Michigan Farm Data 23

24. Michigan Farm Data 24

25. Milk Marketing in the U.S. & Michigan  Multiple component pricing Butterfat + Protein + Other solids + Producer price differential + Somatic cell count adjustment = Total component value } Wholesale finished dairy product prices Cheese Butter NFDM Dry Whey converted to component prices Wholesale finished dairy product prices Cheese Butter NFDM Dry Whey converted to component prices + Co-op premiums (quality and/or volume) + Over-order premiums = Producer mailbox price 25

26. Currently there are 10 FMMO’s in U.S. 26

27. Milk Marketing in the U.S. Classified Pricing Class IV Butter NFDM Class I Bottled Milk Cultured Buttermilk Eggnog Class II Ice Cream Hermetically-Sealed Containers Yogurt/Cottage Cheese Pkg. Cream Class III Cheese Cream Cheese 27

28. Milk Marketing in the U.S. Component Values: butterfat, protein, other solids Wholesale Cheese, Butter, NFDM, Whey Product Prices Class Prices: I, II, III, IV Farm Price: Location, Component & SCC Adjustments 28

29. Federal Milk Marketing Orders (FMMO’s)  Classified pricing: Price of milk based on various class utilizations. 29

30. Milk Marketing in the U.S. $12.74 $19.13 $9.31 Feb, 2009 $21.67 Aug, 2011 30

31. Dairy Farm Economics (MI)  Michigan Dairy Farm Business Analysis Summary (MDFBAS)  Annual financial data collected from ~150 dairy farms in MI  Farms not randomly selected  Herd sizes vary from 2,000 cows  Must produce at least 50% of gross cash farm income from milk and dairy animal sales  Data sorted into three categories based on profitability: Low 25%, Average, High 25% 31

32. MDFBAS Data (1995-2010) ~30 to >2,000 cows 32

33. MDFBAS Data (1995-2010) +0.78 r 2 with ROA 33

34. MDFBAS Data (1995-2010) 34 High 25% +3,600 lbs. vs. Low 25%

35. MDFBAS Data (1995-2010) 35 +$770 per cow/year $14.84 $15.06 $15.07

36. MDFBAS Data (1995-2010) 36

37. MDFBAS Data (1995-2010) 37

38. MDFBAS Data (1995-2010) 38

39. MDFBAS Data (1995-2010) 2011: $13,556/cow ~$4.96 billion total 39

40. MDFBAS Data (1995-2010) Average = +6.1% Total = +104.4% 40 High 25% -$1,541/cow vs. Low 25%

41. MDFBAS Data (1995-2010) 41 $5,019$3,990$3,248 2010

42. MDFBAS Data (1995-2010) 42 High 25% -$1,770/cow vs. Low 25%

43. MDFBAS Data (1995-2010) 43 34%28%25% 2010

44. MDFBAS Data (1995-2010) 44 7.1% 13.4% -0.1% -0.2%7.0%12.1% 2010

45. MDFBAS Data (1995-2010) Low 25% Ave. = -0.1% Stdev = 3.1% Min = -8.1% Max = 6.0% High 25% Ave. = 13.4% Stdev = 3.5% Min = 6.5% Max = 21.2% Average Ave. = 7.1% Stdev = 2.7% Min = 0.4% Max = 11.3% 45

46. MDFBAS Data (1995-2010) Assets – Liabilities = Net Worth 46

47. MDFBAS Data (1995-2010) After accrual adjustments 47

48. MDFBAS Data (1995-2010) Higher productivity & lower cost 48

49. MDFBAS Data (1995-2010) Average Ave. = $15.47 Stdev = $2.21 Min = $11.99 Max = $20.18 Low 25% Ave. = $18.49 Stdev = $2.87 Min = $15.39 Max = $25.20 High 25% Ave. = $13.81 Stdev = $1.98 Min = $11.02 Max = $18.51 49 $18.35$16.70$15.32 2010

50. MDFBAS Data (1995-2010) Average = +2.6% Total = +39.3% 50

51. MDFBAS Data (1995-2010) Low 25% Ave. = $0.99 Stdev = $1.26 Min = -$1.69 Max = $3.06 Average Ave. = $2.53 Stdev = $1.05 Min = $0.29 Max = $4.36 High 20% Ave. = $3.17 Stdev = $1.16 Min = $0.75 Max = $5.17 51

52. MDFBAS Data (1995-2010) 52

53. MDFBAS Data (1995-2010) 53

54. MDFBAS Data (1995-2010) Average = +3.6% Total = +55.9% 54

55. MDFBAS Data (1995-2010) 55

56. USDA Milk:Feed Ratio Data 56

57. 57 USDA Milk:Feed Ratio Data

58. 58 ~45% higher variation USDA Milk:Feed Ratio Data

59. MDFBAS Data (1995-2010) 59

60. MDFBAS Data (1995-2010) 60

61. MDFBAS Data (1995-2010) 61

62. 2012 Dairy Outlook

63. 2012 Dairy Market Outlook 2011 Class III prices: $15.77 (-$2.60 vs. 2011) At 45 th percentile of historic (2007-present) Class III prices ppd’s should be normal for 2011 (~$1.00/cwt) Commercial disappearance: +1.0% (Jan-Feb) Very strong export market (~13% of U.S. total milk solids production) Domestic dairy consumption very weak Current prices absolutely dependent upon maintaining exports U.S. milk output: +3.2% last seven months (2X vs. trend) Cow numbers: 9.272 M (up 112K since 1/2011 despite above trend cull rate for last 25 of 26 months!) Milk per cow: above trend last 5 consecutive months (+2.7%)

64. 2012 Dairy Market Outlook 2012 Outlook: tremendous pressure to increase milk produc- tion with declining profit margins Cow numbers and milk per cow likely to continue growing as producers seek to meet debt payments. Milk prices to continue below average for foreseeable future. If any problems develop in dairy export market we could see a repeat of 2009.

65. 2012? “Prediction is very difficult, especially if it is about the future.” -Neils Bohr 65

66. The End