Futures margin are the best available in years, with falling feed prices and rising milk prices, agricultural economist Joe Horner says.
Source: University of Missouri
Despite neutral supply and demand in dairy markets, the outlook is bullish, said an economist at the University of Missouri Extension Spring Ag Marketing Outlook Conference.
"As we look at futures margins, they are the best available in years, with falling feed prices and rising milk prices," said MU agricultural economist Joe Horner. "2013 profitability will depend a little bit on the growing season, as we are particularly short of quality forages right now."
Milk cows on farm basically started 2013 below year-ago levels and, adjusting for 30-day months, are right in between the last two years. Horner says they haven’t really started building the herd back up and cow numbers are kind of flat-lining.
"We’ve been culling cows really heavily and that should have given us a jump in milk production per cow," Horner said. "But we’ve got some coarse feedstuffs out there, a lot of drought-damaged stuff and expensive feed, so people have cut back on rations. Our milk production on a per cow basis is following trend lines between where it was last year and the year before."
Cow slaughter has continued to ramp up. Horner says it used to be that 40,000 cows a week would be normal, but recently it has been above 60,000.
"There are a lot of farmers looking at the price of cull cows, and if they have a fat cull cow that drops below break-even, she’s going to town," Horner said. "Right now springer heifers are cheap, so it is almost an even trade between selling a cull cow or buying a replacement heifer."
Horner told the conference that exports are potentially strong and have grown to the point where 13.5 percent of milk on a solid basis is being exported. While China is talked about a lot as an export market, Horner says Mexico is still a more important export market right now.
"China’s market potential has everyone very excited," Horner said. "Whole milk powders have traditionally been where the U.S. has been a minor player, leaving that market to be filled by New Zealand. The U.S. is now starting to produce some whole milk powders in addition to skim milk powders. China’s market potential is huge and growing but it remains to be seen how much of that we can capture."
Horner says the outlook for milk prices in the second quarter will be slightly higher than the first quarter. He says the price of milk for all of 2013 will be about $20 per hundredweight, which is a couple of dollars higher than last year.
"All things considered, it is probably going to be the best margin year since 2008," Horner said. "That’s if we can grow our crop, if we can grow forages and if our exports keep milk prices where they’re at."