Economic Research Report No. (ERR-47) 41 pp

September 2007

Profits, Costs, and the Changing Structure of Dairy Farming

U.S. dairy production is consolidating into fewer but larger farms. This report uses data from several USDA surveys to detail that consolidation and to analyze the financial drivers of consolidation. Specifically, larger farms realize lower production costs. Although small dairy farms realize higher revenue per hundredweight of milk sold, the cost advantages of larger size allow large farms to be profitable, on average, even while most small farms are unable to earn enough to replace their capital. Further survey evidence, as well as the financial data, suggest that consolidation is likely to continue.

Keywords: Farms, dairy, costs, production, cows, milk prices, structural change, labor, cost advantages, dairy enterprises, dairies, milk, large dairy farms, agricultural productivity, consolidation, farm structure, economies of scale, economies of size, dairy farm

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