Milk prices will remain relatively stable compared with volatile swings since 2008
Los Angeles, CA (PRWEB) December 02, 2013
Dairy farmers' most important success factor is the price they receive from dairy product manufacturers for raw milk. In the five years to 2013, the price of raw milk has been highly volatile, causing revenue for the Dairy Farms industry to fluctuate. Prior to the recession, rapidly rising demand from growing economies in Asia, the Middle East and South America drove up milk prices significantly, aiding an increase in revenue for dairy farms. This surge in demand was short-lived, however, because the global economic downturn reduced demand and, consequently, the price of US milk. In 2009, the price of milk plummeted 13.4%, and industry revenue dropped a related 28.6%. Fortunately for the industry, milk prices began to stabilize in 2010 due to improvements in the overall economy and returning domestic demand. According to IBISWorld Industry Analyst Antal Neville, “Under these fluctuating conditions, revenue is expected to rise marginally during the five-year period to 2013, increasing an average of 0.3% per year.”
Meanwhile, increased costs for purchased feed, which typically absorb a little more than half of the average dairy farmers' revenue, have rendered 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; federal subsidies, as outlined in the 2008 Farm Bill, have sought to reimburse dairy farmers once raw milk prices fall below a certain threshold.
In 2013, an ongoing rebound in milk prices is expected to boost revenue 2.0% to an estimated $38.0 billion. “The residual effects of a summer drought and pressure from high feed prices resulted in a reduction of annual output per cow, but this is expected to reverse during 2013, due to an uptick in milk prices that encourages increased production,” says Neville. Through 2018, the industry will likely benefit from stabilizing milk prices and improved downstream demand. Government assistance will continue to support profit, while continued economic recovery and population growth will drive demand for dairy products. IBISWorld forecasts industry revenue to increase by 2018.
For more information, visit IBISWorld’s Dairy Farms in the US industry report page.
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IBISWorld industry Report Key Topics
Establishments in the Dairy Farms 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).
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