2022? What lessons can dairy producers learn from ZISK’s annual report

 

Following many years of razor thin margins US Dairy producers may reasonably expect better things for 2022.  The USDA has projected prices at over $20 per hundredweight, and this is leading to optimism for that prices will be above those seen in the last 8-10 years.

In addition US dairy continues to gain export markets in other parts of the world, and these absorb the excess production from a larger herd in 2022.  Chinese milk consumption has grown as their equivalent of Dr. Faucci has proclaimed that milk is an essential part of the diets of people who want strong immunity in case of contracting Covid.   Although China is not a direct contributor to demand for US dairy products it has absorbed almost all of the increased global demand for dairy in 2021,

New technologies provide unique ways to look at producer sentiment. The Zisk App can be downloaded free of charge for dairy producers and today it is used by over 2800 dairies, representing 2.4 million cows.  Each day a quarter of all farms open the Zisk app in order to get in a few minutes an insight into their projected profitability for the months to come, and moving forwards. It is the fastest growing app in the dairy business.  Zisk is easy to use and being quick to use means that the average farmer visits the app 3.6 times a day, or for an average of 5.5 minutes daily.

In reviewing Zisk’s projections for 2022 it seems that

• The Northwest and Northeast will be the most profitable regions of the US, but smaller farms won’t participate in this success. Farms with less than 250 cows will make an average of $125 to $170 per cow in 2020, while those with more than 1000 or 5000 cows will earn about three to five times that level.
• The Southwest will be the least profitable area, with farms below 250 cows in that region expected to lose money in 2022.  The Southeast is close behind.  In both cases farms with between 250 -1000 cows will make about half the income per cow of their neighbors with over 1000 or 5000 cows.

State by state:

• Midwest zisk users expect to be profitable, with even the smaller farms expected to make money, but in this case farms over 1000 and 5000 cows will make 7 – 8 times the profit of the smaller farms. The most profitable ZISK farms will be in Missouri.
• The Southwest region is one of the contrasts, with Oklahoma projecting the best profits and California not far behind. Arizona users of ZISK aren’t feeling the same love, and New Mexico and Kansas producers are also forecasting profits much below the nations average.
• Northeast producers have very different expectations for 2022, with some projecting substantial losses and others very profitable years. Since more users of the ZISK App are present in New York and Pennsylvania these naturally are more representative of what is expected in 2022, with average profit projecting per cow at $480 and $518 respectively.
• The Southeast is not expecting a good year in 2022, except for Florida. In fact, milk producers in five states, Mississippi, Arkansas, Louisiana, Tennessee, and Alabama, are projecting losses or marginal profits per cow, with Georgia, North Carolina and South Carolina well below the nations average returns.
• The Northwest is expecting a banner year, with Washington leading the way. Idaho, Colorado, and Utah also expect strong years, with just Oregon below the US average and Montana’s smaller herds perspectives aren’t so positive.

The ZISK report confirms that larger herds will be more profitable, supporting the nationwide shift towards farms of that size. Farms with over 1000 cows will be considerably more profitable than those with less, and those with less than

250 cows project profits per cow that are five times lower than those with over 1000 cows.  Even farms with 750-1000 cows expect to be substantially less profitable (25-30% lower) than those with over 1000 cows.  The report however shows little benefit to farms with 2500 cows or even more than 5000 cows for 2022 in terms of profitabily.   Almost every economic report shows larger sized dairy farms are the way of the future, and milk purchasers and processers are expecting the same, with those investing expecting economies of scale to be crucial, but for the moment the take home for US producers is that if income from milk production is the main driver of profitability on the farm then having a herd size of over 1000 cows is the critical metric.

Higher profitability on the dairy will almost certainly drive continued investment in innovation.  The best dairies are using or exploring robotics, sensors, wearables (IOT) devices, AI camera vision systems and of course energy generation on the farm through methane digestors and renewable sources.   2022 might eventually turn out to the the most best year in terms of enterprise profitability on the US dairy farms.  Lets not waste it!

Editor’s Note: Aidan J Connolly is the President of AgriTech Capital, former CEO of Cainthus, a contributor to Forbes, an author, speaker, teaches on three Agri MBA programs and commentator on the future of Dairy and livestock agriculture.