U'S'

1
U.S. Southern Production Potential Who Will
Survive?
William A. Thomas Extension Economist The
University of Georgia based on work by Dr. Roger
A. Cady Extension Dairy Specialist Washington
State University
2
What it takes to be competitive

• Cost of production below commodity price
• Demand (having a market)
• Marketing of added value product
• Ability to transport
• Production capability and flexibility

3
U.S. Production Potential

• How?
• What production systems will exist in the U.S.
• Why?
• What are the driving forces shaping U.S. dairy
  production
• Where?
• Will there be production in South

4

• Predicting the future is like driving a car
  blindfolded, following the instructions of
  someone looking out the back window.
• Dr. Gordon Jones, Monsanto

5
WWII Impact on U.S. Food Production

• Specialization - Separated animals from crops
• Enabled agriculture to move to non-traditional
  locations
• Efficient global movement foodstuffs
• Ability for more people to leave farms for
  suburbia and urban populations
• U.S. assumes role of world food producer
• Society relationships change
• Producers become consumers
• Economic, agricultural, food, and environmental
  policy intertwines

6
The small (family) farm?

• USDA Definition - "...farms with less than
  250,000 gross receipts annually on which
  day-to-day labor and management are provided by
  the farmer and/or the farm family that owns the
  production or owns, or leases, the productive
  assets.
• 110 Cow Dairy Farm
• 2/3 of todays milk comes from farms larger than
  this
• Conventional expansion unit is 200 cows
• Slippery slope to define
• More politics than economics

7
Near 50-year U.S. Dairy Industry Trends
87,669
2000 NMPF Dairy Producer Highlights
8
Continuing Changes in U.S. Agriculture

• Vertical Integration
• Seed to table
• Commodities ? Added Value Products
• Marketing
• Specialization

9
Specialization in the Dairy Industry

• Grain grower
• Forage grower
• Heifer grower
• Milker
• Accountant
• Animal health provider
• Heat detection breeding service

• Manure removal
• Cow leasing
• Nutrition consultant
• Farm manager
• Risk management services
• Forward contracting
• More!

10
Continuing Changes in U.S. Agriculture

• Vertical Integration
• Seed to table
• Commodities ? Added Value Products
• Marketing
• Specialization
• ???
• Farmer ? Grower/Producer

11
Farmer or Grower/ProducerMilk production without
farms?

• Grower/Producer
• Technical business knowledge
• Manages resources
• Leased land
• Hired labor
• Borrowed capital
• Value-added, just-in-time commodity producer
• Manages shares risk

• Farmer
• Technical knowledge
• Owns resources
• Land
• Labor
• Capital
• Commodity producer
• Assumes 100 of production risk

12
To Survive Economically

• Increasing costs are requiring dairy farms to
  increase herd size 60 per decade to make same
  living
• Average herdsize required to support 1 family
  will be 300 cows during next decade

13
Production Distribution by Herd Size
2000 NMPF Dairy Producer Highlights
14
Near 50-year Indexed Changes
2000 NMPF Dairy Producer Highlights
15
1998 Regional Cost of Milk Production
Source USDA
16
Land Efficiency
NY Dairy Business Summary, 1997
17
Labor Efficiency
NY Dairy Business Summary, 1997
18
Labor EfficiencyGeorgia Florida Dairies
Dairy Business Analysis Project, 1998
19
Capital Efficiency
NY Dairy Business Summary, 1997
20
Capital EfficiencyGeorgia and Florida Dairies
Dairy Business Analysis Project, 1998
21
Return on AssetsGeorgia Florida Dairies
Dairy Business Analysis Project, 1998
22
Efficiency is key to profitability Reviving the
Past is not an Option

• 800 to 1000 cow units will be the norm
• parlor efficiency
• group handling
• housing efficiency
• labor efficiency, specialization
• Processor pressures
• transportation efficiency
• forward contracting
• quality, quantity, and timing
• RO milk
• Basic unit of commodity trading will change

23
Basic unit of commodity trading
Tanker Load ? 50,000 lbs. daily production
CWT
24
A Probable Scenario

• 1,000 cow herds
• 20,000 lbs. production/cow
• 9,000 herds
• When?
• Number of herds diminishing 50 per decade

20 to 30 years or less
25
Where does this leave grazing?

• Four types of herds
• Last generation
• Lifestyle
• Niche excellent
• Large (?200 cows)

• Grazing
• Land base required
• Limits size
• Seasonal
• Technologically challenging
• Isolated from developing dairy areas?
• Environmentally sound
• Surviving minority will be Lifestyle Niche
  Excellent

26
Production Distribution by Region
2000 NMPF Dairy Producer Highlights
27
Considerations for Dairy Farm Location

• Today Future
• Separation from population centers
• Water rights availability
• Proximity to feed
• Climate (dry)
• Political climate

• Historical
• Surface water
• Proximity to market
• Marginal but useful land
• Ancestral legacy

Wild Card

• Labor Availability

28
South Georgia Future

• Tomorrow
• Separation from population centers
• Water rights availability
• Proximity to feed
• Climate (dry)
• Political climate
• Labor availability

• South Georgia
• Yes
• Yes ??
• No -by products
• No! - AC?
• Yes
• Maybe untrained

29
Summary

• Most milk will come from large dairies
• Resource Efficiency
• Can expand or contract production easily
• Expansion will be dependent on replacement
  availability
• Are in the best position to forward contract
• Dairies located in non-traditional areas return
  to Midwestern states
• Milk can be shipped where needed
• SE will have to be more competitive not less

30
Questions
31
(No Transcript)
32
Price Indexes
1999 NMPF Dairy Producer Highlights