Breaking free of the dairy market fundamentals’ grip that choked 2015-16 producer income is proving difficult. Optimism for 2017 remains, but U.S. milk prices were held in check by growing supplies and weakening dairy product prices in February.
Combined with slightly higher feed costs, mik income margins calculated under the Margin Protection Program for Dairy (MPP-Dairy) shrunk, although the national average margin remains far above indemnity payment triggers.
February 2017’s U.S. average milk price of $18.50 per hundredweight (cwt) was down 40 cents from January. The decline was a setback after monthly milk prices had increased in seven of the past 10 months. The February 2017 U.S. average price is $2.80 more than February 2016.
Nearly all states saw milk price declines compared to a month earlier, with largest declines in Florida, Texas and Virginia (Table 1). The average price was up 10 cents per cwt in Idaho and unchanged in Iowa.
Compared to a year earlier, milk prices were up $3 per cwt or more in six states: California, Illinois, Iowa, Oregon, South Dakota and Texas.
MPP-Dairy margin
Prices for all feedstuffs used in MPP-Dairy calculations rose slightly in February (Table 2). Corn was up 4 cents per bushel, to $3.44; soybean meal rose $2.08 per ton, to $334.42; and alfalfa hay rose $1 per ton, to $129. Overall feed costs averaged $7.92 to produce 100 pounds of milk, up about 8 cents from January and the highest since July 2016.
When combined with January’s numbers, the two-month MPP-Dairy milk income margin averaged $10.82 per cwt, well above the top margin trigger of $8 per cwt.
With weaker milk futures prices, the 2017 outlook for MPP-Dairy margins has weakened somewhat since last month. Based on current milk and feed futures prices, the Program on Dairy Markets and Policy website now forecasts the margin to decline to about $9.50 per cwt in March and $8.50 per cwt in April-May, before rebounding to about $10 per cwt in the final third of the year.
Read: U.S. milk output remains at high tide
The MPP-Dairy margin formula has received a lot of attention as Congress begins work on the 2018 Farm Bill. The National Milk Producers Federation (NMPF) has proposed changes the organization says will more accurately reflect feed costs. (Read What’s in it for you? Dairy producer, processor groups outline policy priorities.)
February cull cow prices inch upward
U.S. cull cow prices rose slightly in February, according to the USDA/NASS Ag Prices report.
February 2017 cull cow prices (beef and dairy combined) averaged $64.90 per hundredweight (cwt), up 90 cents from January 2017, but $12.60 per cwt less than February 2016. 
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Dave Natzke
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- Progressive Dairyman
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