Milk prices have been very low for a few months now. Class III price has been below $15.00 for the past three months with two of those months having prices below $14.00. Class IV price have fared better, but not by very much. There have only been two months of prices below $15.00. The lasts time we saw Class III milk prices this low was in January 2011 with Class IV only back to August 2015. The current All-milk price is the lowest since July 2010. Yet, milk production has not slowed enough to result in a decline on a year-over-year basis. There was anticipation milk production in February might show the first decline in years, but production increased 1.0% when the adjustment was made for leap day. Low milk prices have not had the impact of slowing milk production as much as one would have anticipated by now.
There is hope these low milk prices may be short-lived. Farmers have made adjustments to many areas of their operation and have been loath to reduce cow numbers. Dairy cattle slaughter for the month of February totaled 242,300 head, down 14,100 head from February 2015 and 23,200 fewer than January. This level is 5,000 head above the amount slaughtered in 2014 when milk price was about $10.00 per cwt higher. Overall cow numbers continue to increase with the number of milk cows on farms in February totaling 9.312 million head, 4000 more than last year and 100,000 head more than February 2014.
From these numbers we can gather that dairy producers are doing what they generally do and that is to increase milk production when milk prices fall in order to make up some of the difference. Then when milk prices rise, milk production increases as they want to take advantage of higher prices. There are two reasons milk production declines. Adverse weather during which cow comfort and feed intake declines. This is usually during prolonged periods of hot weather. Or, production declines during a period of low milk prices when feeding methods and rations may change or culling will increase substantially. Feeding methods and adjustment of rations has been taking place as areas of the farming operations are being fine-tuned. We have not yet experienced the impact of hot weather on milk production and we have not yet seen a substantial increase of culling. As a result, milk production is increasing year-over-year and seasonally.
Some areas of the country are just beginning the spring flush period while other areas are still some weeks away. Milk plants are running near capacity in many areas with greater volumes expected over the next three months. This has prompted discussions and implementation of milk quotas based on last year’s milk production by some cooperatives. This is a measure to hopefully limit increasing milk production allowing plants to balance supply with demand. However, cows cannot be turned off like a machine as in a manufacturing plant and then turned back on again when the milk plant wants more milk. I would venture to say that this may have a delayed impact on leveling or reducing milk production. Keeping cows healthy and at peak milk production is the goal for any dairy operation. If these quotas are expected to be implemented for a short duration such as spring flush, dairy farmers may continue to push milk production through that period of time in order to maximize the lactation curve of their dairy cattle in hopes that milk demand and prices will increase and they can continue on after the quotas are lifted. Yes, it will be frustrating and depressing to receive less money for increased milk production, but it may be better than affecting the productivity and efficiency of the dairy operation. The bottom line is that plants may need to make less income on what they process/manufacture or work harder to market product when milk supply is plentiful just as dairy farmers do at times when milk prices are low and expenses are high. It will all “come out in the wash” in the end. This will ensure consumers will have good quality dairy products available for consumption.
-February Agricultural Price report on March 30
-March Federal Order class prices on March 30
-Prospective Plantings report on March 31
-Quarterly Grain Stocks report on March 31
-California April/May Classes 2 & 3 milk prices on April 1
-California March Class 4a & 4b prices on April 1
-February Dairy Products report on April 5
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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