By Derrian Coffey, News Staff Writer
MARSHFIELD – Over the last two decades, the American dairy industry has undergone a major economic transformation.
Thousands of family dairy farms have disappeared, herd sizes have grown, technology has reshaped milk production and operating costs have increasingly favored larger farms.
At the same time, U.S. milk production continued reaching record levels even as the number of dairy farms sharply declined.
According to the U.S. Department of Agriculture’s Economic Research Service, U.S. milk production increased 32% between 2004 and 2024, rising from 170.8 billion pounds to 225.9 billion pounds annually.
During that same period, the number of licensed U.S. dairy herds fell by 63% — dropping from 66,825 farms to 24,811.
The shift reflects a long-term consolidation trend within the dairy industry, where fewer farms are producing a larger share of the nation’s milk supply.
Small farms faced higher costs
In the early 2000s, smaller family dairies remained common across states such as Wisconsin.
Many farms milked between 40 and 100 cows and relied heavily on family labor and existing infrastructure.
USDA cost-of-production data showed significant differences in operating costs based on herd size.
In 2000, farms with fewer than 50 cows faced milk production costs exceeding $30 per hundredweight, while farms with more than 500 cows operated at less than half that cost.
By 2021, the gap had widened further. USDA estimates showed farms with fewer than 50 cows averaging production costs of about $42.70 per hundredweight, compared to roughly $19.14 for farms with 2,000 or more cows.
Economists refer to the difference as “economies of scale,” where larger farms are able to spread expenses such as labor, buildings, equipment, insurance and technology across higher levels of production.
As a result, larger dairy operations gained cost advantages that many smaller farms struggled to match.
Technology changed milk production
Technology also played a major role in the industry’s transformation.
Between 2000 and 2021, the use of computerized milking systems, automated feeding equipment, advanced breeding programs, and precision dairy technology increased significantly across the industry.
USDA researchers found many of these systems were economically practical primarily on larger farms.
Modern dairy operations increasingly adopted:
• computerized milking parlors
• precision feeding systems
• reproductive technologies
• cow-level production monitoring
• genetics programs designed to increase milk output
Milk production per cow also increased substantially during the same period.
The average U.S. dairy cow produced 18,960 pounds of milk annually in 2004.
By 2024, that figure had risen to 24,178 pounds per cow.
The increase reflected improvements in genetics, nutrition, herd management and production technology.
Larger herds produced more milk
The industry’s consolidation accelerated throughout the 2010s and early 2020s.
USDA data showed the average dairy herd size increased from 112 cows in 2000 to 283 cows by 2021.
Farms with 1,000 or more cows also expanded rapidly and became responsible for a growing share of national milk production.
By 2022, farms with 1,000 or more cows accounted for approximately 66% of all U.S. milk sales despite representing only a small percentage of total dairy operations.
Several regions experienced rapid growth in large-scale dairy production, including Texas, Idaho and New Mexico, where new dairy facilities and processing plants expanded milk production capacity.
Meanwhile, many traditional dairy regions across the Upper Midwest continued losing small and midsize farms.
Rising expenses limited profitability
Although milk prices periodically reached record highs, rising expenses often reduced profit margins for dairy producers.
Federal Milk Marketing data and USDA cost studies showed that feed, fuel, fertilizer, labor, equipment, and interest costs increased sharply during the early 2020s.
In 2022, average milk prices reached historic highs, but many dairy producers still faced financial pressure as operating expenses rose nearly as fast as milk revenue.
Feed costs remained one of the industry’s largest expenses, accounting for nearly half of total milk production costs in many years, according to USDA reports.
USDA economists also found that the average dairy farm fully covered long-term economic costs — including unpaid family labor and capital replacement — in only a limited number of years over the past 25 years.
Many farms remained operational by delaying equipment replacement, refinancing debt, relying on unpaid labor, or accepting lower financial returns.
Rural communities also changed
The decline in dairy farms also affected many rural communities historically tied to the dairy industry.
As farms closed or consolidated, some communities experienced population declines and reduced economic activity connected to local agriculture.
USDA researchers noted that some smaller farms continued operating despite failing to consistently cover long-term production costs.
Today, the U.S. dairy industry produces more milk than ever before, but with significantly fewer farms than two decades ago.
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