The U.S. dairy industry faces a changing government policy environment in the year 2000. Milk producers are struggling, and will continue to struggle, to adjust to markets that are more dependent on the forces of supply and demand. Data from the 1993-95 Farm Costs and Returns Surveys and the 1996 Agricultural Resource Management Study show that dairy farm businesses in general did a fairly good job of meeting short-term debt, generating returns, and meeting long-term debt from 1993 to 1996. The analysis indicates that farm management strategies will play an important role in determining the overall profitability of a dairy farm business as Government supports decline. However, the 1996 data suggest that changes in management techniques are adopted slowly.

Differences in regional conditions were the chief influence on variations in cow-calf production costs across the United States. Cow-calf operators in the West and Southern Plains have significant cost advantages over operators in other regions because, with a longer grazing season, their herds require less supplemental forage during the winter. The larger acreage size of operations in the West and Southern Plains also can support more cows and take advantage of economies of scale (spreading the fixed investment over more units of production). Because of the harsher climate, operations in the North Central region and Northern Plains spend significantly more to maintain their herds. Cowherds in the Southeast are primarily on small and part-time operations. These findings are based on the 1996 Agricultural Resource Management Study (ARMS), the most recent national survey of cow-calf producers.