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Dairy Market Confusion

Published on: 06:54AM May 08, 2009
The chart of the week is the Wisconsin Dairy Cow for Slaughter Market.  Dairy cow slaughter prices typically fluctuate with dairy farmer profitability and are a solid indicator of the building or the contraction of the dairy cow herd.  And the size of the dairy cow herd is important because it greatly impacts milk production and thus the supply of cheese, butter and other dairy products.  As the chart shows, dairy cow slaughter prices in Wisconsin have climbed to their highest levels since October suggesting that dairy farmer profitability has improved and dairy cow slaughter has waned.  How could dairy farmer profitability improve when milk prices are historically depressed and feed prices are rising?  Well, the recent rise in dairy cow slaughter prices, and dairy cow replacement prices as well, are likely due to a couple of factors and not a current improvement in farmer profitability.  First, the latest National Milk Producers Federation’s CWT herd retirement issue, which will subsidize farmers to send some of their cows to slaughter in June and July, is just around the corner and farmers are likely waiting to liquidate part of their herd through the CWT.  Second, deferred milk futures for the better part of the late winter and early spring were elevated and enabled proficient farmers to lock in some profits.  All of this being said, the scene may be set for a strong surge in dairy cow slaughter and reduced milk production this summer due to the CWT herd retirement issue and the recent decline in milk prices.  Buyers may want to visit dairy based contracts this month.  We can help you manage risk, contract and forecast your dairy and other commodity contracts.  If you would like to learn more please feel free to give us a call at 888-423-4411.
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