How Long Will Current US Dairy Margins Last?

US - Market factors mean younger US dairymen are currently seeing more profitability in dairy farming than at any point in their careers, says Pennsylvania University’s latest outlook.
calendar icon 21 March 2014
clock icon 3 minute read

The standard profit measure of ‘income over feed’ costs rose by six per cent last month to US$12.02/cow/day – the highest since the metric commenced in January 2000.

Lower feed prices and a record Class III milk price of $23.35 have been helped by a stronger harvest and Chinese demand supporting the world dairy market.

However, the International Farm Comparison’s feed price indicator indicates grain markets are creeping higher as diplomatic tensions in Ukraine rumble on.

Nevertheless, helpful margins are having a limited effect on overall production as cautious producers use cash to address debts.

According to Wisconsin University’s Professor Bob Cropp, many businesses are financially recovering from the depressed prices of 2009 and the 2012 drought.

Rather than being a potential growth period for the US industry, Professor Cropp sees current helpful margins as a time for consolidation.

However, corn at $4.50-4.75/bushel, rather than $7 corn of a year ago, is allowing drought-hit states to produce more milk.

In his March outlook this week, Professor Cropp wrote that California milk production ran around five per cent higher for January and February: “California and Texas margins are very favourable for milk production."

He added: “California has added milk cows and improved milk per cow. The severe drought is not impacting milk production at this time.”

He outlined a production drop seen in Idaho, the Upper Midwest, New Mexico and several other northern states.

Professor Cropp attributed this partly to sub-par feed after the Midwest’s wet spring and dry summer last year.

He added: “The extreme cold this winter may also have added to some herd health issues.”

Ultimately though, Professor Cropp sees US milk production improving through 2014 as cow numbers and milk per cow output increases.

Summarising the effect of greater profitability on herd size, Prof Cropp said: “Despite rather high slaughter cow prices dairy cow slaughter thus far this year has been nine per cent below a year ago.

“With favourable margins lower producing cows that normally would be culled are still profitable to milk.”

Analysts foresee lower milk prices this year, although no sharp downturn is on the cards.

In its quarterly dairy report, Rabobank said global production has been assisted by ‘generally excellent weather’, barring Australia and the Northern US.

Rabobank stated tight supplies are becoming ‘an increasing nightmare’ for importers as China more than accounts for recent increases in milk.

Demand will hinge on Chinese buying remaining strong which is not certain given efforts to stabilise domestic supplies and its lower currency, Rabobank stressed.

Analysts now eagerly await the April/May spring flush to determine how much prices will ease.

Rabobank predicts 20 per cent more dairy on the export markets for the first half of the year.

Professor Cropp expects Class III milk to end the year at $18 and be in the $19-$20 range by early summer.

Michael Priestley

Michael Priestley
News Team - Editor

Mainly production and market stories on ruminants sector. Works closely with sustainability consultants at FAI Farms

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