Milk prices will remain relatively stable compared to volatile swings since 2007
Los Angeles, CA (PRWEB) November 27, 2012
The most important factor that drives the success of dairy farmers is the price they receive for their raw milk from dairy product manufacturers. In the five years to 2012, the price of raw milk has been extremely volatile, causing revenue for the Dairy Farms industry to also fluctuate. “Prior to the recession, rapidly rising demand from growing economies in Asia, the Middle East and South America drove up milk prices significantly,” says IBISWorld analyst Josh McBee. “In addition, adverse climates in traditional export countries like New Zealand and Australia created a global supply shortage of milk, which benefited US dairy farms.” This surge in demand was short-lived because the global economic downturn and the return of traditional exporters quickly reduced demand and, consequently, the price of US milk. The price of raw milk plummeted 13.4% in 2009, and revenue dropped a related 30.9%. Fortunately for the industry, milk prices began to stabilize in 2010 with improvement in the overall economy and returning domestic demand. Under these fluctuating conditions, revenue is expected to fall marginally during the five-year period to 2012, decreasing an average 0.4% per year.
Increased costs for purchased feed, which typically accounts for just more than half of the average dairy farmers' revenue, have created negative operating profit margins since 2008. In particular, the price of corn, which is a key ingredient for most livestock feeds, has skyrocketed due to its use in ethanol production. In response to rising feed costs, dairy farms have increasingly consolidated to reduce labor and overhead expenses, says McBee. “Low market share concentration characterizes the industry. US dairy farms are highly fragmented, with most farms consisting of family owned operations.” As a result, the Diary Farms industry comprises many small farms that produce a minority of revenue. Industry concentration is increasing as small dairy farms take losses and leave the industry. Meanwhile, the remaining dairy farmers are growing operations to take advantage of economies of scale and increase their profitability.
In 2012, ongoing rebounds in milk prices are expected to boost revenue to an estimated $35.6 billion. The residual effects of a summer drought and pressure from high feed prices suggest a small reduction of annual output per cow, but this is expected to increase during 2013 on the back of an uptick in milk prices that encourages increased production. Through 2017, the industry will likely benefit from stabilizing milk prices and improved downstream demand. Government assistance will continue to support profit, while steady economic recovery and population growth will drive downstream demand. For more information, visit IBISWorld’s Diary Farms in the US industry report page.
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IBISWorld industry Report Key Topics
Establishments in this industry primarily raise cattle for milk. The industry includes only the sale of raw milk and excludes the production of drinkable fluid milk and processed dairy products like butter, cheese and powdered milk. Those value-added activities are covered in the Dairy Product Production industry (IBISWorld report 31151).
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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