Supply Response in Dairy Farming: Evidence from Monthly, Animal-Level Data

We estimate short-run price response in dairy farming using nearly 10 million monthly animal-level observations across 2,311 Wisconsin farms in the years 2011-2014. We control for herd size and account for the age distribution of dairy cattle to identify changes in variable inputs in response to price movements. We find heterogeneous supply response across the animal life cycle to lagged movements in monthly milk and beef prices. Specifically, we find the greatest supply response in age cohorts with relatively high marginal returns from feeding, with supply elasticities as high as 0.286 for milk price and 0.713 for beef price. The results are primarily driven by significant producer response to prices in 2014, a period of volatile milk and beef prices.