Spot market prices have been holding well despite some bearish fundamentals that have dominated the market. Spring flush is not a bearish event as it takes place each year at this time with the industry prepared for it.. Increased milk production is being handled without too much difficulty. However, some plants are surprised at the level of production being seen even though milk prices are lower than a year ago. Some areas of the country either have passed or are at peak milk production while others are in the midst of spring flush with milk receipts growing. Although milk prices are low, dairy farms are pushing cows to peak milk production. Milk prices have not fallen to a level at which culling is increasing or where adjustments are made to rations resulting in reduced milk production in order to reduce the cost per day of feeding. Dairy farmers that I have spoken with are intent on doing the best they can to maintain peak production and efficiency.
Milk production in the month of March shows this desire to keep production strong. Milk production increased 1.8% over a year ago. Production per cow increased 32 pounds with cow numbers increasing 10,000 head over February and 14,000 head above last year. This was a significant increase of cow numbers despite low milk prices. Feed supply is plentiful and reasonable. Milk prices holding at current levels is not allowing for much profit to be made on the dairy, but yet it is not low enough to cause the reduction of milk output. It certainly is positive that milk prices are holding through this period of time and if prices can hold throughout spring flush it will certainly be positive. However, if milk production continues to remain strong and above year earlier levels, low milk prices may be around for quite some time. The market will find an area where supply and demand will be balanced and this may be the level at which it will be accomplished.
Culling is not increasing as dairy cattle slaughter in March was in line with last year. Culling is not reducing the nation’s herd or even maintaining it. The issue here is thatcow numbers continue to increase. Replacements are being brought into the milking herd and then some. In fact, cow numbers in the nation for March totaled 9.325 million head. This is the highest national dairy herd since December 2008. We can only hope that we do not repeat a similar pattern for milk prices as 2009 or it will be devastating for the industry. Many cannot understand how milk production and cow numbers are increasing as there are farms giving up with those farms going on the auction block. We much realize that what may be happening in our neighborhoods is not necessarily an indication of what is taking place in the country. Dairy cows continue to bring strong prices at auctions as they are being purchased to add to another herd.
Some areas of the country have seen continued increasing cow numbers when compared to 2008 when cow numbers were similar to what they are today. Comparing cow numbers in each of the 50 states for the fourth quarter of 2008 to the first quarter of 2016, there are 16 states that have increased cow numbers. Those states are: Arizona, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Michigan, Oregon, South Dakota, Texas, Utah, Washington, and Wisconsin. There were 11 of these states which showed significant cow number increases with other 5 being marginal. This clearly shows that farms that are going out of business are being absorbed by other operations maintaining and increasing cow numbers as well as improving milk per cow. Dairying is a business and improving efficiency, lowering cost of production, and marketing are the necessary ingredients to maintaining the business. Milk prices have always gone in cycles and will continue to do so. Record high prices were experienced in 2014 and will be achieved and exceeded again in time. Unfortunately, we are in a down cycle.
-Agricultural Prices report on April 29
-California Class 4a & 4b prices on May 2
-April Federal Order class prices on May 4
-March Dairy Products report on May 5
-World Agricultural Supply and Demand report on May 10
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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