Dairy Cows and Milk Prices

Published on: 09:24AM Jan 16, 2009
The chart of the week is Wisconsin Dairy Cow for Slaughter Prices.
As mentioned in previous issues of the Weekly Commodity Report and Daily Commodity Bulletin, depressed milk prices are pinching milk farmer margins. To put this in perspective, the February 2009 milk futures contract is currently trading well below $10. A year ago the February 2008 contract was trading at $17.00. Feed costs are lower, but not low enough to offset the significant descent in milk prices. Just like any other business, when milk farmer margins deteriorate they typically cut back. And one of the most notable ways that they do so is by reducing the number of cows they have that are producing milk. The idea is to tighten milk supplies to hopefully pressure milk prices upward to regain normal margins. Sound familiar? It should. It’s exactly what cow/calf, hog and chicken producers are doing right now as I have mentioned in previous notes. There are some key indicators that we look for in anticipation of a reduction in the dairy cow herd including an increase in dairy cow slaughter, a slowdown in milk per cow yields, and a downturn in slaughter dairy cow and replacement dairy cow prices. The chart indicates that dairy cow slaughter prices have been relatively depressed in recent months. This is not a sign that milk producers are retaining cows to produce more milk. Other indicators suggest that a systemic reduction in the dairy cow herd is pending which eventually would be bullish for the milk and dairy product markets.
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