Supply Response in Dairy Farming: Evidence from Monthly, Cow-Level Data
Department of Agricultural & Applied Economics
University of Wisconsin - Madison
Wednesday, March 21, 2018
Taylor-Hibbard Seminar Room (Rm103)
12:00 pm-1:30 pm
We estimate average monthly cow-level yield response to milk price and feed cost for a sample of 2,747 Wisconsin dairy farms. Our sample represents approximately 1 million unique cows from among the farms who participate in the national Dairy Herd Improvement program. Prior research by economists suggest limited short-run price response by dairy farmers with estimates for price elasticities ranging from 0 to 0.3. However, these estimates are based on aggregate quarterly and state level data and therefore conflate the effects of milk-price movements on yield per cow for a given age, and the age of replacement. Nevertheless, weak supply response is consistent with the dairy science literature where normative evaluation of “optimal” levels of nutrition and health inputs (within a given lactation cycle) typically do not depend on economic conditions. Overall, we find evidence consistent with weak average short-run response to milk price and input price, but also significant variation in responsiveness across the lifecycle of a cow. Yield responds significantly to lagged price early in the lactation cycle, and in later lactations. Additionally, we find an economically significant response in cow-level milk yield to slaughter price, suggesting input complementarity late in a cow's life when weight gain for slaughter also expands milk output.