AgDairy Market Update
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wis. He provides dairy market insight.
The Goal is More Milk
Aug 04, 2014
In today's market, strong domestic and international demand is driving the need for larger milk supplies.
The goal of dairy producers is to keep cows healthy and happy so they will produce as much milk as possible.
Large strides have been made over the years in the area of cow comfort and feeding practices. Technology has been, and is being, discovered to enhance and monitor nearly all areas of the dairy operation. It takes money to make money in all business, and dairying is no exception. We know the effects on milk production if cows are uncomfortable. We know the effects if rations are not balanced and feed additives are skimped on because of cost. We know the effects of uncleanliness and poor milking practices. These are what we try to avoid.
One way to increase milk output is to cull low producers and replace them with better genetics and higher-producing cows. This is an ongoing practice on each and every farm as cows need to pay their own way. Over the past few years, culling has been more aggressive as it took more milk production in order for a cow to pay for itself. Skyrocketing corn and soybean meal prices increased the level of breakevens. Profitability was limited or non-existent in many cases. But with increasing cull-cow prices, some of the shortfall in milk income was made up by selling cows, resulting in reduced feed requirements for the herd. Dairy producers did what they had to do in order to pay the bills.
Now, that practice has changed to some extent. High milk prices this year and declining feed prices have improved income over feed costs and profitability dramatically. The first seven months of this year showed a Class III average price of $22.48, a Class IV price of $23.19, and an All-Milk price average of $24.21. All of these are record averages for this time of year and are well on their way to record prices for the year.
So, despite continued high cull-cow prices, high milk prices and low feed prices have reduced breakevens, allowing for more cows to be kept in the herd. We see this trend on monthly slaughter reports released by the USDA. Dairy cattle slaughter in June totaled 199,000 head. This is the lowest monthly slaughter since June 2008 and has shown a steady decline so far this year. At the same time, the overall nation’s milking herd continues to increase, with cow numbers in June reaching 9.266 million head, the most since April 2012. We can clearly see the desire to produce as much milk as possible. In today’s market, this is a necessity as demand is good both domestically and internationally.
What becomes more interesting is when a comparison is made with milk prices and feed prices. In April 2012, when cow numbers totaled 9.271 million head, the All-Milk price was $16.80 with an income-over-feed-cost of $5.21 per cwt. The last time monthly dairy cattle slaughter was this low, the All-Milk price was $19.30 with an income of feed costs of $9.03 per cwt. The most recent All-Milk price was $23.40 with an income-over-feed-cost of $13.81. These statistics show that high milk prices increase the desire to produce more milk to capture better returns while low prices necessitate pushing production and cow numbers for the purpose of improving the size of milk checks.
The dairy industry seems to be in a different posture presently with demand absorbing production, extending the period of time of high prices. How long milk prices will be able to hold at these levels is unclear, but enjoy them while they are here.
- California Class I price on August 8
- World Agricultural Supply and Demand report on August 12
- July Milk Production report on August 19
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.
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