By Bob Yonkers, Ph.D., IDFA Chief Economist

The U.S. Department of Agriculture estimates total U.S. milk production in 2011 was 196,216 million pounds, up 1.76 percent from 2010 and a new record-high level. The milk production increase seen last year was almost the same as the average year-over-year increase for the past 10 years. Compared to the 10-year time periods listed below, the past decade showed the highest 10-year rate of increase since at least the 1930s.

Annual average change in total U.S. milk production every 10 years (adjusted for leap years):

Clearly the past 10 years represent the greatest period of growth in U.S. milk production since our federal dairy policies came into being in the 1930s. A closer look also reveals that the past 10 years have been much less volatile in terms of milk-production growth than in the past.

The figures below show the monthly percent change in total U.S. milk production compared to the same month the prior year on an average daily basis (minus the impact of having a different number of days in different months, including leap years). Figure 1 shows that the past 10 years have seen mostly increases, with just a few short periods where monthly changes were negative in late-2009 into early-2010 and in the second quarter of 2003 into the first half of 2004. For most of the past decade, milk production has marched steadily higher.

Compare the most recent 10 years with the prior decade in Figure 2 (1992-2001). There were a lot more ups and downs in milk-production growth during those 10 years, with extended periods of low or negative growth in U.S. total milk production occurring every two or three years. Looking back further, that same pattern seemed to exist during the 1982-1991 period also (Figure 3). Note especially the deep drops in milk production in 1984 and 1986-87 and the big increase between these periods.

Many dairy professionals may remember the Milk Diversion Program, which began January 1984 and ran for 15 months; it paid dairy producers to reduce farm milk marketings from between 5 percent and 30 percent. This was a temporary federal supply-management program that did result in lower milk production, but look what happened as soon as that program ended. The period beginning even before the program ended saw the highest monthly year-over-year increases in U.S. total milk production on record, and the growth spurt lasted for about a year. It only ended with the introduction of another federal dairy policy designed to control the supply of milk, the Dairy Termination Program, which paid dairy producers to leave the dairy industry for at least five years and slaughter or export their entire herds of dairy cattle.

Figure 4 shows the period 1972-1981, another 10 years of variability in milk-production growth. Note especially the negative growth in 1973 and early 1974; prior to 2009, many industry analysts pointed to that period as the worst time of dairy farm profitability on record, with high feed costs accompanied by federal efforts to limit farm milk price increases during a period of high consumer inflation.

So, what does all this tell us? The longest extended period of dairy industry growth has occurred during the period since 2004. This almost exactly coincides with the time that U.S. commercial exports of dairy products began to climb higher, U.S. dairy export subsidies by the federal government largely remained unused and little product was purchased under the Dairy Product Price Support Program. Interestingly, the Milk Income Loss Contract program came into being with the 2002 Farm Bill; dairy counter-cyclical direct payments may have contributed to removing some risk from farm milk production leading to fewer periods of negative milk production growth.

I urge everyone in the dairy industry to look closely at Figure 4, which highlights the years when attempts to use federal dairy policy to temporarily reduce the supply of milk with the Milk Diversion Program led to huge growth in milk production when that temporary program ended. That outcome just might provide a lesson to consider when evaluating federal government interventions using programs that are temporary and voluntary.