Looking Beyond The Dairy Horizon

It is hard to look beyond the horizon when a grass fire is approaching your farm buildings. The pressure of the moment keeps us narrowly focused on what is current. That’s where dairy breeders are at today. The cows who are being milked today were conceived in a time of more positive margins in dairying than exists in 2016. However, if they plan to be in business in 2025, they have to widen their perspective. Today’s successes were built on decisions made years ago. Breeders must always be looking into the future when it comes to planning for the cows that they will need to be milking in their herds in three generations. The best advice is – “Don’t look back, you’re not going that way”. So let’s look to dairying in 2025. It is only nine years away.

Global Predictions

The November 2015 World Agricultural Supply and Demand Estimates report predicts ‘Global demand for food and agricultural products is expected to grow until 2025. Crop production will fall a bit, but the outlook for livestock production looks promising’. Farm gate milk prices are forecasted to increase especially from 2020 forward.

In 2015, the distribution of the global human population was 60% Asia, 15% Africa, 14% America (North & South) and 11% Europe. Add to that fact, 83% of the global population growth between now and 2025 will occur in developing countries of which Asia has a high proportion. In developing countries, the population is younger and in most cases there is an expanding middle class both of which will result in the higher consumption of dairy products.

Economic growth on a global basis is forecast to be 3.1% (developing countries 4.7% and developed countries 2.0%) until 2025 slightly below the long-term trend prior to the 2008 financial crisis. The range in economic growth will be Europe 1.8%, North America 2.5%, South America 2.6%, Middle East 4.0%, Asia & Oceania 4.3% (including China 5.3% and India 8.1%) and Africa 4.5%. However, percent growth must also consider the global GDP share by regions: Asia & Oceania 30%, Europe 29%, North America 25%, South America 8%, Middle East 4% and Africa 3%. Dairying should fare well from Asia’s growth potential and its relative global position in share of GDP.

All of this is positive news for dairying. However, that does also mean that there will need to be changes required at the farm level, as we’ll address later.

USDA Predictions

To better understand what is ahead for dairying details contained in the recently released USDA Long-Term Projections – February 2016 gives numbers that dairy farmers can understand and use as they plan for 2025.
Table 1: USDA Dairy Cattle Related Predictions*

	2016	2020	2025
Number of Cows (Millions)	9.31	9.31	9.35
Milk per Cow (Pounds)	22,880	24,760	27,405
US Milk Production (Billion pounds)	213	230	256
Price - all milk (USA$)	16.39	17.21	19.91
Corn (Million acres planted)	88	90	88
Corn ($ per bushel)	3.65	3.71	3.75
Soybeans (Million acres planted)	83	82	81
Soybeans ($ per bushel)	8.91	9.05	9.29
Milk Fat Basis
	209	222	246
	9	12	14
	6	6	6

* Data source – USDA Long-Term Projections – Februrary 2016

A few predictions are noteworthy:

Cow numbers will remain constant
Production per cow and total national production will increase 20% by 2025. That’s over +2% per year. To achieve the production figure cows, on average, will need to be milked 3x.
Corn and soybean acres and prices per bushel will not change over the period
Domestic disposal of milk will increase 18% 2016 to 2025, so the USA will need to export more milk products.
Export of milk products have decreased in 2016 to 9 billion pounds, due to lower milk prices. However, exports but will return in 2020 to their 2014 level of 12 billion and increase to 14 billion pounds by 2025, when export will be 5.5% of production.
Not shown in the table – bovine meat prices are expected in 2025 to be 80% of current prices, number of dairy farmers will decrease at an increasing rate, and average US herd size could average 425 cows by 2025.

Situation 2025

Even though milk producers in many countries are currently stressed because of a perfect storm, 2025 looks promising provided they take steps to adapt their operations. The 2015-2016 perfect storm of EU quota is disappearing, a Russian embargo, China and India production increasing and the USA and NZ producers are not adjusting for the production to demand imbalance, all of which are not likely to occur again any time soon.
Milk producers in planning for 2025 should consider the following:

Technology
- New technology will need to be put in place to achieve year upon year cow production increases of 2% in production. It goes without saying that technology requires more output per cow and cows per herd to be justifiable.
- With low-cost labor disappearing in many countries, automated systems will need to be purchased.
- On-farm management expertise will require both training and application of computerized systems. Decision-making ability and accuracy of decisions will need to be increased.
- State-of-the-art social media will be significantly advanced from today and will become a “must use” by dairy people.
Output Per Farm
- Since 1925 (when milking machines came on the scene) cows per worker has doubled every twenty-five years to where in 2025 there will 80 milk cows plus their replacement per worker.
- Milk shipped per worker in 2025 will need to be 170% of what it is today (2016). In respect to production efficiency, dairy farming is no different from any other industry. It must always move forward.
Trade and Milk
- Currently 9% of the global milk production crosses country borders. At one time, not too long ago, it was 4%. It will likely remain in the 9% range until 2025.
- Trade Agreements are here to stay and will impact milk prices more in the future than they have in the past. Once signed all trade agreement clauses must be adhered to.
- Expect that the agricultural policy of other countries will impact dairying in your country. It is difficult enough to compete today with producers in other countries but having to compete when a foreign government stimulates milk production, or limits imports can be impossible.
- Currency exchange rates have a significant impact on the amount of trade and business success.
Revenue Generation
- Milk producers will need to plan more for their revenue in the future than they have in the past. That could include doing their on-farm processing and selling or by joining in selling coops with other producers to ensure their incomes. Few producers can survive when they are an island onto themselves.
- Producers have learned in 2015 -2016 that farm gate milk price stability is job #1. Cost control, although significant, ranks second to revenue generation.
- Revenue generation from the sale of cull animals or a secondary dairy beef enterprise is not predicted to increase 2016 to 2025.
Consumer Demands
- Verified high-quality safe milk will no longer be taken as a given by consumers. Eventually, producers everywhere will have to be able to verify the quality, safety and production techniques of their milk. Inferior milk will not be allowed to cross borders.
- The corner has been turned, and low-fat milk will be discounted in price at the farm gate. Butter is back.
- Milk that is 4.5%F and 3.1%P will give the fat needed without there being excess (unwanted) skim milk powder.

Other trends will continue. One sure thing is that the rate of change will be faster and faster with time.

What Has This Got to Do with Breeding?

The genetic merit or make-up of the 2025 cows will need to be enhanced from today. Here are a few areas:

Ratio Fat %: Protein % will need to be expanded from 3.9%F: 3.1%P to 4.5%F to 3.1%P.
Selection needs to be to maximize fat and protein yields from minimal milk volume
The day of the disposable cow needs to be over (5 not 2.5 lactations per cow are needed)
Higher pregnancy rates will be necessary (1.5 not 2.5 average services per-conception)
DMI from 80% forage diets needs to increase
Cows must be technology friendly and require minimal labor
Selection needs to start for resistance to production-limiting and other diseases
Selection for a host of new traits will be possible (Read more: Will Genetic Evaluations Go Private?)

The Bullvine recommends that breeders use commercially available mating programs where various breeding program scenarios can be run before semen is purchased. The scenarios studied should consider both programs that depend on revenue from both a) 90+% from milk sales and b) 65% milk and 25% breeding stock sales. Of course on all farm 10% of revenue comes from other sources including culled cows and calves for veal.

The Bullvine Bottom Line

Granted there will always be dairy farmers that have a niche situation, and therefore, they will not be impacted in the same way as the wider population. The norm in 2025 will not be the same in every country. But there is no going back. Change will occur at an ever increasing rate. An objective plan and sound daily enterprise management will be a necessity for all who plan to be dairy farmers beyond the horizon of 2025.