Number of the Week:  1600

USDA estimates Minnesota October 2013 milk yield per cow at 1600lbs.

Min20131206 - HiResMinnesota milk yields per cow have been steadily increasing over time, growing on average 1.98% per year since the World War II. Perhaps a more interesting way to examine yields is to plot them against a measure of farm profitability, rather than time. In the scatterplot above, on the horizontal axis we measure the difference between Minnesota year-on-year growth in milk yields and the national yield growth. On vertical axis is the dairy Income-over-feed-costs (IOFC) margin, as will be defined in the new Farm bill. There is a noticeable inverted relationship between these two measures over the last seven years.

For example, in August 2012, national IOFC margin was $2.98, which is more than $5.00 below the historical average. The U.S. average milk yield per cow that month was 1,785 lbs, 5 lbs less than in August 2011. In contrast, Minnesota yield in August 2012 was 1,620, which is 50 lbs higher than in August 2011. Minnesota yield growth that month was 3.46% higher than the national yield change. In contrast, in January 2008, IOFC margin was $11.96, almost $4.00 over the historical average. National yield in January 2008 was at 1,723 or 17lbs over January 2007. In Minnesota, January 2008 yield was 1,610, or 15 lbs less than in January 2007. Since 2007, the correlation between IOFC margins and the difference in Minnesota vs national yield growths has been modestly negative at -0.42.

How should we interpret this data? Why do yields in Minnesota seem to grow faster than the U.S. yields when margins are lower? The causality here likely runs in reverse, not from margins to yields, but from yield shocks to margins. When upper Midwest experiences unanticipated good weather and our milk yields grow more strongly than national yields that creates a downward pressure on IOFC margins. When heat stress or poor harvests create a situation not conducive to milk production growth in Midwest, and our yield growth lags behind national, milk shortage results in temporarily elevated IOFC margins as markets send signals that more milk is needed.

Bear in mind that the relationship between IOFC margins and yields is a rather complicated one and the explanation offered above is hardly the only mechanism that could be in play. For example, if less efficient producers tend to exit the industry when margins are low, we could see higher state-level yield growth in poor times even as the state dairy herd is contracting. For analysis that can speak about causality more convincingly one would need to go beyond state-level reports and use individual farm data.

Explore further:
October 2013 Milk Production Report
This week’s Minnesota in Numbers was produced with financial support from Dairy Star and Minnesota Milk Producers Association. Maggie Jennissen assisted in assembling the data.

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