By Bob Yonkers, IDFA Chief Economist, Ph.D.
Total U.S. farm milk production increased each year between 2002-2007, and that marks the first time there has been six straight years of such growth since at least 1930 (see Figure 1). So far in 2008, it appears that record run will stretch to seven years; the U.S. Department of Agriculture reports that, through October, milk production is running 2.4 percent ahead of the same period last year.
A key reason is that U.S. dairy farm operations in recent years have reversed a long-term trend of declining numbers of milk cows. As Figure 2 shows, there have been very few periods since 1930 when the number of milk cows on farms increased: during the early years of the Great Depression, during World War II and in the early 1980s, when the government was supporting farm milk prices far in excess of market realities.
However, milk cow numbers have shown annual increases in six of the last nine years beginning in 1999,.So far in 2008, USDA reports that monthly average milk cow numbers are running 1.2 percent higher than last year. If this trend continues through the end of this year, it would be the first time since 1980-1983 (and only the second time since the end of the Great Depression) that milk cow numbers increased for four straight years.
It is important to remember that there has to be a market for this increased production. In the early 1980s, the "market" was the U.S. government and the Dairy Price Support Program (now the Milk Price Support Program). Between 1981 and 1986, USDA spent over $2 billion each year buying dairy products that would not sell in the commercial market; this amounted to as much as 13 percent of U.S. farm milk production in those years.
The situation during these past few years is very different, though. Strong demand, for both domestic products and exports, has absorbed the recent surge in milk production. While USDA has spent about $50 million in the past two months buying nonfat dry milk under the Milk Price Support Program, that is a far cry from the over $2 billion per year in spending during the 1980s.