Milk prices are providing some optimism. May U.S. milk production was up 1.2 percent. Early June margins improved. This and other U.S. dairy economic news can be found here.

Natzke dave
Editor / Progressive Dairy

Are dairy prices on the slow road to recovery?

This month’s dairy economic picture is the same but different, according to Mark Stephenson, director of dairy policy analysis at the University of Wisconsin – Madison, and Bob Cropp, dairy economics professor emeritus.

In their monthly podcast, Stephenson and Cropp reflected on current conditions and painted some optimism in their outlook.

Based on USDA’s monthly milk production report, regional production story lines are essentially the same. Cow numbers were steady, but milk output per cow improved. Hot weather is likely to put a damper on milk output per cow as we progress further into summer.

What’s different is the recent surge in dairy product and milk futures prices.


“We’ve already hit the bottom,” Stephenson said. “We’re on our way up. The question is whether we’re going to take the 2-dollar jump or more the futures market shows, or if it will be a little softer than that.”

“Sales are going to be good; production will slow a little bit; and exports might even improve,” said Cropp. “Milk production appears to be slowing worldwide.”

“Those low prices in other parts of the world are starting to have an impact on milk production,” Stephenson added. “We’ll finally get a chance to work down some of the stocks.”

“I don’t expect the recovery to be explosive,” he said. “Prices will start to creep up to more comfortable levels, but it’s going to take awhile before we feel like we’ve had a full-blown recovery.”

Class I base improves in July

The July federal milk marketing order (FMMO) Class I base price is $13.70 per hundredweight, up $.56 from June, but $2.83 less than June 2015.

Through the first seven months of 2016, the Class I base average is $13.96 per hundredweight, down $2.38 from the same period a year earlier.

FMMO Class I ($ per hundredweight)

July 2016 – $13.70

June 2016 – $13.14

July 2015 – $16.53

January-July 2016 – $13.96

January-July 2015 – $16.34

Dairy outlook brightens, for now

Despite relatively strong milk production, increasing stocks of dairy products and weak exports, domestic food service sales helped boost dairy product prices in June. If those prices hold, farm milk prices could be stronger than previous forecasts, according to Bob Cropp, professor emeritus with the University of Wisconsin Extension.

USDA’s monthly milk production report (PDF, 250KB) indicated cow numbers had leveled off, helping limit year-over-year milk production gains.

Nationally, May 2016 milk production was estimated at 18.645 billion pounds, up 1.2 percent from May 2015. Milk cow numbers were estimated at 9.327 million head, 3,000 head more than May 2015, but unchanged from revised April 2016 estimates.

South Dakota again topped the list for largest year-over-year gain in milk production, at 9.5 percent, followed by Michigan, up 6.9 percent. New York, Wisconsin and Colorado also posted gains of at least 4 percent.

Milk production in Utah (-4.6 percent), New Mexico and Virginia (each -3.8 percent), Florida (-2.9 percent) and California (-2.8 percent) saw the largest declines, with fewer cows the predominant factor. New Mexico cow numbers were down 13,000 from the year before; California was down 6,000.

Higher milk prices will be needed to offset any weather-related increases in corn, soybean and hay prices, Cropp said.

Read the full Progressive Dairyman article.

June LGM-Dairy sales period offered margin protection option

Dairy farmers who still have the option could protect milk income margins through the USDA Risk Management Agency’s Livestock Gross Margin for Dairy (LGM-Dairy) program, while leaving open the opportunity for milk price increases, according to Alan Zepp, risk management program manager at Pennsylvania's Center for Dairy Excellence.

Under LGM-Dairy, producers could insure milk income over feed cost margins for a 10-month period. The current 10-month (August 2016-May 2017) LGM-Dairy margin was expected to average $6.25 per hundredweight, with a low of about $5.76 per hundredweight in December 2016-January 2017, and highs of $6.25 per hundredweight next April-May.

As of June 22, the cost of a zero deductible policy for the 10-month period was $.83, with a $1 deductible policy costing about $.30 per hundredweight.

In comparison, an October 2016 Class III $16.25 per hundredweight “put” was trading at $.90 on June 22. An October 2016 Class III $15.25 “put” (similar to a $1 deductible LGM-Dairy policy) would cost $.46 per hundredweight.

Next month’s LGM-Dairy policy sales period is set for July 29-30.

A reminder: By law, producers already enrolled in USDA’s Margin Protection Program for Dairy (MPP-Dairy) can’t participate in LGM-Dairy.

Read the full Progressive Dairyman article.

Dairy Margin Watch: June started stronger

Dairy margins improved significantly during the first two weeks of June, with a strong rally in milk prices offsetting higher fed prices, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging LLC. Margins for deferred periods into 2017 held steady.

Margins remain only average at best, and are still negative as dairy producers struggle with milk prices below breakeven.

Milk prices have moved sharply higher following a jump in both Chicago Mercantile Exchange spot cheddar and butter prices. Recent hot weather across the Midwest and Northeast is also impacting cow comfort and seasonally reducing milk production.

USDA’s June world ag supply and demand estimates report was neutral for corn and bullish for soybeans.

Visit the Margin Manager website.

Dairy cow slaughter tepid

Temperatures are rising, but the pace of dairy cow culling remains somewhat tepid, according to monthly USDA data. For May 2016, federally inspected milk cow slaughter was estimated at 214,600 head, 12,400 less than April and just 600 more than May a year ago.

May 2016 contained 22 weekdays and four Saturdays. May 2015 contained one less weekday, but one more Saturday. Both contained one holiday.

At 648 pounds, average cow carcass dressed weights were unchanged from April, and about 5 pounds lighter than May 2015.

Through the first five months of 2016, dairy cows slaughtered under federal inspection were estimated at 1.23 million head, about 9,500 less than January-May 2015. USDA’s latest milk production report indicated the U.S. dairy herd is about 3,000 head larger than last year.

Relatively low cull-cow prices may be contributing to retention of some milk cows. Including beef and dairy cows, the second quarter 2016 cutter cow price averaged $72 to $75 per hundredweight, about $35 less than the second quarter of 2015, according to USDA’s latest outlook report.

USDA’s latest projections estimate cutter cow prices will be in a range of $67 to $73 per hundredweight in the third quarter of 2016, before rebounding slightly later in the year and into 2017.

California dairies below breakeven

The largest one-third of dairies in California – producing about two-thirds of the state’s milk – saw a first-half 2016 breakeven milk price of about $15.20 per hundredweight, according to the Rabobank Food & Agribusiness Research and Advisory Team.

While a slow milk price recovery is forecast at the end of 2016, Rabobank projects prices will be below breakeven for a majority of California producers through the first half of 2017, in part due to the state’s dependence on dairy exports.

Data released in Frazer LLP’s Dairy Farm Operating Trends report showed dairy producers in five of the seven regions realized a net loss per cow and per hundredweight of milk for the year ending Dec. 31, 2015. When compared to a year earlier, net income was down more than $1,000 per cow across the entire area.

The data is compiled from Frazer LLP dairy operation clients in Southern California, the San Joaquin Valley, Kern County (California), Arizona, Idaho, New Mexico, the Texas Panhandle, and the Pacific Northwest. Collectively, those herds represent about 323,000 head of mature cows and produced more than 7 billion pounds of milk in 2015.

Read California: When will breakeven prices return?

Global Dairy Trade prices steady

Dairy product prices were steady at the Global Dairy Trade June 15 auction, with a drop in whole milk powder offsetting gains in cheddar and butter. The next auction is July 5.  PD

Dave Natzke