Chapter 1: Producer Demographics What the Looking Glass Shows

Transcription

1 Chapter 1: Producer Demographics What the Looking Glass Shows 8

2 Introduction Pennsylvania has a long legacy as a state with a strong dairy industry to meet the demands for milk and dairy products, both internally and across the Eastern region. As with any commodity, Pennsylvania s dairy industry is in constant competition with other dairy states and regions, in terms of maintaining and expanding its share of the domestic and international markets. In 2012, Pennsylvania ranked fifth in total milk production, with about billion pounds of milk, and fifth in total mature dairy cow numbers, with 534,000 head. It was second in the number of licensed dairy herds, at 7,240 herds. More alarmingly, the commonwealth ranked 23rd in milk yield per cow, with 19,601 lbs.; 12th in milk value per cow, at $3,631 per cow; and 48th in herd size, with an average of 75 cows per herd. These parameters could define the industry s ability to be economically sustainable in the future. In order to evaluate future plans of producers and identify demographics of the industry, the PA Dairy Futures Analysis research team (hereafter referred to as the analysis team) modified a survey that was sent out to dairy producers in November 2008 and sent a new version out in August The surveys were mailed to the 5,000 Pennsylvania dairy herds with more than 30 cows. In September, 1,077 surveys were returned, providing a response rate of nearly 22 percent, which is down slightly from the response rate of 26 percent for the 2008 survey. Basic Producer Demographics As shown in Figure 1.1, the surveys that were returned in 2012 represented 65 of 67 counties in Pennsylvania and 18 percent of the dairy farms in the state. Lancaster County represented 20.4 percent of the milk production on the survey results and produces 20.7 percent of Pennsylvania s milk, making the survey statistically relevant in terms of projecting trend lines for the industry. Of the returned surveys, 79 indicated they were no longer milking cows, leaving 975 active dairies remaining in the review. Those dairies were averaging 99.7 total milk cows, with 84.3 milking cows producing 69.7 pounds of milk a day. This compares to 1,578 active dairy farms that completed the survey in 2008, with an average of 92.9 total milk cows and 80.4 lactating cows, with an average of 68.4 pounds per day. BY THE NUMBERS: AVERAGES OF RESPONDENTS No. of Replacements No. of Owned Acres No. of Rented Acres Age of Primary Owner Gender of Primary Operator Number of Total Households Represented in Survey 122 head acres acres 47 years old 93% Male 1,424 Households Figures Figure 1.1 Distribution of 1,077 Survey Respondents By County The dairy operations remaining active, as shown in Figures 1.2 and 1.3, averaged 122 head of youngstock and acres of owned land, with acres of rented cropland. The average age of the primary owner was 47 years old, and 93 percent were male. A total of 1,424 households were represented in the survey, with an average of 1.5 households per business. As farms considered retirement, 75 percent expect a family member to continue the business while 9 percent anticipate that a nonfamily member will take over. Approximately 60.2 percent of the survey respondents were housing their dairy herd in tie stall barns, while 33.8 percent were using freestall facilities. That is a change from 64.4 Number of Households Sharing in Profits but Not Related to Primary Owner 78 Households percent and 31.7 percent, respectively, in The most recent upgrade to milking facilitates averaged 15 years before both surveys, with 1997 being the average year for the most recent upgrade indicated in the 2012 survey. Larger dairy herds completing the survey in 2012 were more optimistic about their future than smaller herds, as shown in Figure 1.4. However, all dairy farm operations surveyed in 2012 were more uncertain about their future than in This uncertainty could have partly due to the ongoing period of stressed profit margins in Figure 1.4 9

3 Herd Size The average herd size of the surveyed respondents increased from 80.4 total milk cows in 2008 to 99.7 total milk cows in However, the average herd size in the state remains about 75 cows per herd. To extrapolate the survey results and evaluate the attributes of herd size in Pennsylvania, the analysis team undertook three approaches. Data from the USDA Census and the survey data, as well as data from herds participating in the Dairy Records Management Systems were used to: 1) Estimate the proportion of operations by varying herd size overtime. 2) Estimate the cumulative percent of milk sales by operation. 3) Estimate the proportion of the operations by size in 2013, using the DRMS records. Figure 1.5 uses USDA NASS data in 2007 to show the distribution of herd size groups for the major dairy states in the U.S. Pennsylvania leads in the proportion of herds in the 1 50 cow category, while having the lowest portion in the cow and More than 500 categories. Figure 1.5: Distribution of Dairy Herds at Various Size Ranges (NASS Data) Cow Number Trendlines Based on producer responses, the 2012 survey projects that 78 percent of those currently milking will continue in 2017, with an average herd size of 118 cows. That is a decrease from 86 percent of the respondents in 2008, who expected to milk an average of cows in Based on this observation, Figure 1.6 represents the difference between the National Agricultural Statistics Service s Pennsylvania cow number trend line and the extrapolated trend forecasted in the survey. Based on the 2012 survey results, cow numbers are expected to continue to increase in the central counties of Pennsylvania, while dairy cows will continue to exit the mineral rich counties in the Northern Tier and western Pennsylvania through Figure 1.7: Change in Cow No ( ) Figure 1.6: Comparison of Current Cow Numbers & Extrapolated Numbers Reasons for Discontinuing Retirement was the primary reason for exiting the dairy business for those who intended to discontinue across all herd sizes in However, in 2012, it was a much smaller consideration with economics representing the most significant reason, as shown in Figure 1.8. Larger dairies showed an increased interest in shifting to beef, cash crops or other ag segments in 2012, compared to 2008, unlike the smaller or mid-size dairies that listed economics as the primary reason. Overall, in 2012, economics was the primary reason for exiting, with a shift to cash cropping listed as the third highest reason to retire from dairying. Of those farms that plan to retire in the next five years, the majority of the large farms appear likely to transition to the next generation. However, a smaller percentage of the smaller farms have plans to transition. Figure 1.8: Reasons for Exiting Dairy Business by 2017, from 2012 Survey 10

4 The incremental change, as shown in Figure 1.9, in the proportion of milk sales from herds of 500+ cows has increased dramatically in New York, followed by Minnesota and Wisconsin. Pennsylvania had the smallest increase in the percent of milk sales coming from herds with more than 500 cows, reflecting a small rate of change over the time period. Figure 1.10 represents the cumulative milk sales plotted against herd size, reflecting the degree of consolidation being pursued and the proportion of milk that is sold by the larger herds. All states have cumulative curves that have shifted to the right at varying levels, from 2001 to However, Pennsylvania has the smallest shift to the right of all states and, in 2007, had a profile very similar to California was highly consolidated in 2001, having the highest curves further to the right than any other state, and saw minimal change in Figure 1.9: Change in Percent of Milk Produced by Herds with 500 or more cows from 2001 to 2007 Figure 1.10: Trend Lines in Herd Size Figure 1.11: What Statement Best Describes Your Future (All Herd Sizes) Comparison Across Parameters A more detailed analysis of the survey data correlates a herd s somatic cell count to other management factors. Herds with low SCC scores were more likely to have younger operators, be milking more cows, be attaining higher milk production per cow and be using both a written business plan and nutritionist than were herds with higher somatic cell counts. More details on these trend lines will be in the next chapter. Interest in Herd Growth In a recent DRMS data set, accessed in January 2013, from Pennsylvania, Wisconsin, Michigan, Minnesota and New York, the commonwealth continues to have the highest proportion of small herds and the lowest proportion of large herds. This demonstrates that the Pennsylvania dairy farms have been slow to grow, with the industry dominated by small herds. In the Producer Survey, respondents were asked to indicate which statement best described their farm s future. As shown in Figure 1.11, more than 50 percent said they were confident that they can meet their profitability goals at their current size and structure. In 2012, only 27 percent of the larger herds indicated that they will have to grow to increase their profitability, down from the 47 percent that indicated they will need to grow in The number of smaller and mid-sized herds anticipating the need to grow fell by 8 percent, while the number of herds who expect to meet their profitability goals at their present size increased for all herd sizes. This shows that Pennsylvania herds are less interested in growth than they were in Identifying the key factors associated with producers reluctance to grow could be a subject for future analysis. Distribution of Annual Gross Income As shown in Figure 1.12, milk sales are obviously the largest average income source on Pennsylvania dairies, with over 90 percent of total income coming from milk sales. Only 581 farms reported beef sales, although almost all farms have cull cow and calf sales. Genetics and breeding stock sales accounted for 1 percent of the income, although a quarter of all farms had some income from breeding stock sales. One-third of the farms surveyed sold crops, with the percentage of total income coming from crops % Total No. of being slightly over 4 percent. Milk Sales 90.2% 936 Beef/Veal 4.5% 581 Genetics/ 1.2% 221 Crops 4.2% 365 Figure 1.12: Distribution of Income on Surveyed Farms 11

5 Management Improvements Planned As shown in Figure 1.13, producers surveyed planned to maximize homegrown feed production and milk price. They also planned to lower their cost of production and stabilize their milk price to compete in the next five years. Increasing milk production, improving udder health, and increasing components were somewhat important to the respondents. However, they did not see increasing herd size as an acceptable option to improve their ability to compete in the next five years. Producers plan to invest more in facility improvements focused on cow comfort, heifer housing, feed handling, manure storage and milking facilities in 2012 than they were in 2008, as shown in Figure Milk cow housing was not identified as a priority in the 2012, as the producers seemed to be focused on improving their existing operations rather than expanding. Robotics were not identified as a priority for the average 2012 respondent. Reinvesting in facilities is a higher priority for larger dairies in 2008 and 2012 than it is for smaller herds, as Figure 1.15 shows. Facility improvements in cow comfort were ranked as the highest priority for larger dairies with more than 250 cows in both 2008 and 2012, with housing for heifers and dry cows ranked second. For mid-size dairies, cow comfort and feed handling facility improvements were identified as important, while smaller dairies expected to invest in cow comfort and heifer housing, both in 2008 and The change from 2008 to 2012 indicated an increasing interest in renewable energy investment from smaller to mid-size herds. Figure 1.13: Options Identified as Important for Success in the Next Five Years Figure 1.15: Facility Improvements Planned: Comparison Between Different Herd Sizes Figure 1.14: Facility Improvements Planned 12

6 Survey respondents in 2012 milked seven more cows averaging one more pound of milk per day with a somatic cell count that is 100,000 lower than those who responded to the 2008 survey. The primary operator is 1.5 years older, utilizing fewer tie stall barns and more free stalls. Dairy cows decreased in the Northern Tier counties, due to natural gas opportunities, but increased in the central counties. Survey respondents anticipate these trends will continue. More of the larger dairy farm businesses expect to continue milking cows than the smaller herds, although this percentage decreased from 2008 to Dairies intending to discontinue milking cite economics as the primary reason, with retirement being the second choice. Retirement was selected at a lower rate in 2012 than 2008, reflecting the recent financial stress on dairy farms. The 2012 survey indicates, on dairies with more than 100 cows, 85 percent of the businesses expect to transition to a family member, up from the 2008 survey results. Smaller dairies anticipating a successful transition to a family member fell from 76 to 74 percent in Milk sales is obviously the primary income source on the dairies surveyed. with genetics and breeding stock providing 1 percent and crop sales adding 4 percent to the gross farm income for the respondents. Smaller and mid-sized farms are considering more facility investments for cow comfort, heifer handling, feed handling, milking systems, manure handling, and renewable energy than they were four years ago. Fewer larger herds are considering investments in cow comfort, milk cow housing, feed handling, milking facilities, and manure handling systems even though a larger percentage of the larger herds are considering investing in their business. Twice as many large herds (by percentage) are concerned about land availability. The most limiting factor to expansion on the majority of Pennsylvania dairy farms is no desire to expand. Land availability, family time concerns, labor and debt are also limiting factors to herd growth, even though most producers are still confident in their ability to meet profitability goals. To meet the goals in the next five years, producers plan to maximize homegrown feeds and milk price while lowering their cost of production and stabilizing their milk price without increasing cow numbers. Prescriptions for the Industry: These prescriptions were identified as ways to influence positive change in the area of producer demographics. To remain competitive as individual dairy farms and as a leading dairy state, producers must continue to improve their husbandry and management skills, striving to achieve benchmarks in key herd performance areas. Pennsylvania lags behind other top producing dairy states in milk production per cow. If all Pennsylvania dairy farms would increase milk production by five pounds from 2013 to 2017, instead of the one-pound increase from 2008 to 2012, based on the survey, milk production in the state would increase by 975 million pounds annually The industry should encourage maximizing the use of existing cow housing facilities, milking parlors, and available crop acres to optimize assets, grow milk production and associated profitability in the industry. If producers focus on achieving capacity or investing in step-wise expansions, this could help grow milk production. If survey respondents doubled the 2013-to-2017 growth rate as compared to the 2008-to-2013 time frame, an additional 7,400 cows to the state s dairy herd would help to increase milk production in the region by potentially million pounds annually, based on current milk production levels. In the next ten years, bringing a next generation into these dairy businesses will be critical to Pennsylvania s dairy industry. Confidence in the long-term prospects of building viable dairy businesses is essential to the future of the industry. The Center for Dairy Excellence, Penn State and other support organizations should develop transition resources and incentives for on-farm businesses to transition to the next generation. If these resources increase the percentage of surveyed dairies planning to remain in dairy in 2017 from 78 to 90 percent, that would avert a potential 11,000-cow loss from attrition just within the survey group. 13