Shrinking margins are drawing LGM-Dairy payments. Dairy cow culling has been slower. Organic dairy product and milk prices are at a premium. This and other U.S. dairy economic news can be found here.

Natzke dave
Editor / Progressive Dairy

For dairy producers interested in “that other” federally subsidized income safety net program, it may be too late to participate in this month’s Livestock Gross Margin for Dairy (LGM-Dairy) sales period, April 29-30. The next sales period is May 27-28.

Under LGM-Dairy, producers can insure milk income-over-feed cost margins for a 10-month period, June 2016 through March 2017, during the upcoming sales period according to Alan Zepp, risk management program manager at Pennsylvania's Center for Dairy Excellence. The policies are available through certified crop insurance companies.

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

Zepp updated producers on current dairy markets and margins during his monthly “Protecting Your Profits” conference call on April 27.


While the goal of insurance programs is to protect against risk and not necessarily collect indemnity payments, current economic conditions indicate LGM-Dairy is paying out. Since last October, monthly insurable income-over-feed-cost margins under the LGM-Dairy are between $1.70 and $2.76 per hundredweight less than those under MPP-Dairy, Zepp said. Depending on margin levels insured by participating producers, many utilizing LGM-Dairy will likely see indemnity payments for the foreseeable future.

Under LGM-Dairy, producers can select both the feed cost and milk price to determine their individual margin. Or they can select “default” margins based on current markets.

As of April 27, the 10-month (June 2016 to March 2017) average LGM-Dairy margin was $6.41 per hundredweight, ranging from a low of $5.27 per hundredweight in June 2016 to a high of $7.02 per hundredweight in March 2017. The estimates are based on a dairy feed (dry alfalfa hay, corn and soybean meal) ration similar to that used in MPP-Dairy margin calculations.

Current forecasts estimate MPP-Dairy margins could fall close to $6.50 per hundredweight for the April to May and June to July pay periods but are expected to improve above the $8 level later in the year.

The anticipated cost for a policy this April sales period is $0.57 per hundredweight at $0.00 deductible and $0.16 per hundredweight for a $1.00 deductible policy. According to Zepp, the basis adjustment to convert the LGM-Dairy margin to the MPP-Dairy margin is about +$1.50, so the $6.41 plus $1.50 would roughly equate to a $7.91 MPP-Dairy margin.

Annual MPP-Dairy Tier 1 (first 4 million pounds of milk per year) premiums are $0.09 for a $6.50 per hundredweight margin and $0.04 for a $5.50 per hundredweight margin. MPP-Dairy Tier 2 premiums (any insured milk over 4 million pounds per year) are $0.29 for a $6.50 per hundredweight margin and $0.10 for a $5.50 per hundredweight margin.

Larger herds (up to 1,000 cows) prefer LGM-Dairy because it is less costly, Zepp said. However, the program has a cap of 24 million pounds of milk per year, so the largest herds cannot cover all their milk. LGM-Dairy, administered through USDA’s Risk Management Agency, is also subject to federal funding caps so enrollment may be limited if funds run out each fiscal year.

Market update

Based on the latest USDA monthly milk production report, U.S. cow numbers were estimated at 9.325 million in March, up 10,000 from the month before. Zepp called the number somewhat surprising, saying the latest estimate means cow numbers have already recovered and surpassed an estimated 25,000-cow death loss caused by the late-December Snowstorm Goliath in New Mexico and Texas.

Zepp said current butter stocks aren’t at historic highs but they are on the high side of where inventories have been in the past 10 years. Cheese stocks, on the other hand, are the highest since 1984.

Milk prices remain low. Class III milk prices are about 25 percent under the three-year average with Class IV prices about 29 percent under the three-year average. It could be worse, as domestic prices remain stronger than the global market. Chicago Mercantile Exchange (CME) cheddar is trading about 15 percent above Global Dairy Trade (GDT) and European Union (EU) prices, and CME butter prices are about 30 percent over GDT and 60 percent more than EU.

After running above U.S. milk prices since January 2007, the Russian embargo instituted in 2014 pushed EU milk prices below the U.S. average, a trend extenuated by milk production growth following elimination of the EU quota.

Powder prices are in the basement throughout the world and 45 percent under the three-year average.

The value of February U.S. dairy imports were about 3 percent under the three-year average, but exports are 28 percent of the three-year average.

Zepp’s Protecting Your Profits calls are hosted in a webinar format and recorded so they are available for later viewing. Past Protecting Your Profits calls can be accessed on the Center for Dairy Excellence website under “Dairy Information.”

Dairy cow culling slows

Dairy cow culling has slowed, trailing year-ago levels in five of the past seven weeks ending April 16, according to USDA data.

For March 2016, federally inspected milk cow slaughter was estimated at 261,800 head, just 1,100 more than the same month a year ago. March 2016 contained 23 weekdays and four Saturdays. March 2015 contained one less weekday.

Through the first quarter of 2016, dairy cows culled were estimated at 783,700, about 5,300 more than January-March 2015. However, when weekly numbers are calculated through April 16, cow slaughter is down 12,000 head from the comparable period a year ago.

That’s despite USDA’s estimate the overall U.S. dairy cow herd contains 14,000 more cows than March 2015.

Relatively low cull-cow prices may be contributing to retention of some milk cows that would have otherwise been culled, according to USDA’s latest outlook report. Including beef and dairy cows, the cutter-cow price declined substantially through the second half of 2015 and continued to be relatively low in the first quarter of 2016.

USDA’s latest outlook report projects cutter cow prices to average in a range of $77 to $83 per hundredweight in 2016, with highest prices forecast for the final quarter of the year. Down from $99.56 per hundredweight in 2015, the average would be the lowest since 2013, when cutter cow prices averaged $77.56 per hundredweight.

Organic ‘premiums’ monitored

USDA’s Dairy Market News reports substantial premiums for organic milk and milk products.

Reports received the week ending April 22 indicated pallet loads of organic dry whole milk sold in the U.S. for $5.3000 per pound. With conventional dry whole milk selling for $1.2800 to $1.3300 per pound (carload/trucklot volumes), the organic premium was $3.9700 to $4.0200 per pound.

Organic nonfat dry milk continued selling slightly above $4.0000 per pound in the West. With conventional nonfat dry milk in the West selling between $0.7100 and $0.8250 per pound, the organic premium is at least $3.2900 to $3.1750 per pound.

The 12-month average mailbox price paid by a national organic dairy brand across 14 U.S. regions was $36.60 per hundredweight. With the January 2016 U.S. average “mailbox” price of $15.93 per hundredweight for conventional milk, the organic premium paid in January was $20.65 per hundredweight.  PD

Dave Natzke