Lower cutter cow prices are reducing slaughter, adding to the milking herd. May margins weakened a bit. MPP-Dairy margins look like they’ll bottom out in June at about $5.50 per hundredweight. GDT auction posted a small gain, but global prices are still low. This and other U.S. dairy economic news can be found here.
U.S. dairy cow numbers hit 8-year high
The U.S. dairy herd continues to grow. At 9.331 million head in April, the nation’s dairy barns and pastures now hold the largest number of cows since 2008.
Since Winter Storm Goliath hit herds in Texas and New Mexico in late December, U.S. cow numbers have now increased in four consecutive months.
Year-over-year growth in cow numbers was largest in Michigan (+13,000), South Dakota (+11,000), Idaho (+6,000) and Colorado (+4,000). New Mexico cow numbers were down 12,000 from the year before; California was down 6,000.
Read April milk production up as milk cow numbers hit 8-year high.
Dairy cow slaughter drops
Dairy cow culling has slowed substantially, according to monthly USDA data. For April 2016, federally inspected milk cow slaughter was estimated at 227,000 head, 35,200 less than March and 15,800 less than April a year ago.
April 2016 contained 22 weekdays and four Saturdays. April 2015 contained one less weekday, but one more Saturday.
Through the first four months of 2016, dairy cows slaughtered under federal inspection were estimated at 1.01 million head, about 10,100 less than January-April 2015. That’s despite USDA’s estimate that the overall April U.S. dairy cow herd has grown to be 15,000 more cows than April 2015.
Relatively low cull-cow prices are contributing to retention of some milk cows that would have otherwise been culled, according to USDA’s latest outlook report. Including beef and dairy cows, the first quarter 2016 cutter cow price averaged $73.50 per hundredweight, about $4.30 less than the final quarter of 2015 and $34.11 less than the first quarter of 2015.
USDA’s latest outlook report projects cutter cow prices will average in a range of $72 to $77 per hundredweight in 2016, with highest prices forecast for the second quarter of the year.
Down from $99.56 per hundredweight in 2015, the 2016 average would be the lowest since 2013, when cutter cow prices averaged $77.56 per hundredweight.
MPP-Dairy margin projections dip to $5.50 in June
Forecasts for Margin Protection Program for Dairy (MPP-Dairy) margins now project margins to bottom out in June at about $5.50 per hundredweight, with margins of about $6 per hundredweight in May and July. USDA’s Farm Service Agency announces the April margin, the second piece for the March-April MPP-Dairy pay period, on May 31.
May margins getting weaker
Dairy margins deteriorated significantly over the first half of May due to a combination of higher feed costs and weakness in the milk market, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging LLC. Margins remain negative into 2017, and are well below average from a historical perspective.
Continued pressure in milk is being driven by expanding production in Europe, especially in the Netherlands and Ireland. In the U.S., the latest World Ag Supply and Demand Estimates report revised 2016 milk production up 600 million pounds from April’s forecast, to 212.4 billion pounds. Improved forage availability and favorable feed costs are expected to contribute to productivity gains in milk per cow, with cow numbers on par with a year ago. As a result, USDA cut the 2016 average milk price forecast for both Class III and Class IV milk.
USDA surprised the market with a bullish ending stocks figure for new-crop soybeans in its first projection for the 2016-2017 crop year. The corn figures were more neutral for the market. However, corn has likewise moved higher since the report, receiving spillover support from the soybean complex.
Visit the Margin Manager website.
GDT posts small gain, but prices remain low
The latest Global Dairy Trade (GDT) auction saw the overall price index improve 2.6 percent—not enough to create resounding optimism.
Butter, whole milk powder and anhydrous milkfat prices were among the gainers, but cheddar and skim milk powder were down. It marked the fourth overall gain in the past six auctions. However, prices remain about 15 percent lower than September 2015 and more than 50 percent less than prices in 2014.
Global markets still have at least six months, and perhaps 12 months or more, before recovery gets underway, according to HighGround Dairy. Global milk supplies must show significant contraction. Reducing burdensome public and private stocks will also be key to beginning the next bull phase
Milk production in both the U.S. and European Union probably won‘t see any signs of contraction until the fourth quarter of 2016, and more likely at some point in 2017.
HighGround warns, however, that buyers should not be lulled to sleep by the constant barrage of bearish fundamentals.
Federal order Class I base dips in June
The June federal milk marketing order (FMMO) Class I base price is $13.14 per hundredweight, down $0.56 from May and $3 less than June 2015.
Through the first six months of 2016, the Class I base average is $14.01 per hundredweight, down $2.30 from the same period a year earlier.
FMMO Class III ($ per hundredweight)
June 2016 – $13.14
May 2016 – $13.70
June 2015 – $16.14
January-June 2016 – $14.01
January-June 2015 – $16.31
Next ‘Protecting Your Profits’ conference call is May 25
Pennsylvania's Center for Dairy Excellence will host the next “Protecting Your Profits” conference call on Wednesday, May 25, 12-12:15 p.m. (Eastern). Alan Zepp, risk management program manager, will provide an overview of current dairy markets and margins, including opportunities through Livestock Gross Margin for Dairy (LGM-Dairy).
The next LGM-Dairy policy sales period is May 27-28.
Anyone can participate in the free monthly conference call series, but pre-registration is required. To register, call the center at (717) 346-0849 with name, phone number, and e-mail address. Once registered, participants will receive the call-in number and information.
In addition to participating live, calls are hosted in a webinar format and recorded, available for later viewing. Past Protecting Your Profits calls can be accessed under “Dairy Information.” PD
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Dave Natzke
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