Measuring dairy margins is a sport unto itself. It’s not creating a windfall, but the 2016 outlook brightened somewhat, and dairy export volumes hit an 11-month high. This and other U.S. dairy economic news can be found here.
National monthly cost of production
At a glance: May feed prices boosted operating costs, and milk prices were lower
USDA’s monthly Milk Cost of Production report was released for May 2016. Total costs were up a little from the month before, but less than a year earlier. In both cases, the changes were due to feed costs.
U.S. milk prices averaged $14.50 per hundredweight in May 2016, down 50 cents from April and $2.30 less than May 2015.
May 2016 total operating costs averaged $13.39 per hundredweight of milk sold, with feed (purchased, homegrown and grazed) making up about $10.58 per hundredweight.
Compared to a month earlier, May 2016 feed and operating costs were up 7 cents and 9 cents, respectively.
Compared to a year earlier, feed and operating costs were down $1.08 and $1.14 per hundredweight, respectively.
Based on USDA estimates, feed represented about 49 percent of total costs in May 2016.
In addition to feed, operating costs include expenses related to such things as veterinary and medicine, bedding, marketing, custom services, fuels and electricity, and interest.
When adding costs related to allocated overhead, total costs averaged $21.71 per hundredweight in May 2016, up about 8 cents from April, but $1.13 less than May 2015.
Allocated overhead costs include expenses related to labor (both paid and opportunity costs for unpaid), capital recovery on machinery and equipment, opportunity costs of land (rental rate), and taxes and insurance.
Pennsylvania dairy outlook
At a glance: June income over feed costs improved
Pennsylvania dairy farmers saw milk income over feeds costs (IOFC) improve in June, with higher milk prices and lower feed costs helping raise the bottom line, according to the July 2016 dairy outlook report from Jim Dunn, Penn State University dairy economist.
Dunn’s calculations reflect daily gross milk income minus feed costs for an average cow producing 65 pounds of milk per day. Based on a Pennsylvania June 2016 average milk price of $16.77 per hundredweight, the state’s cows generated about $10.90 per day in gross milk income. Daily feed costs averaged $4.16 per cow, for an IOFC of $6.74 per cow per day. That’s about $1.05 (18 percent) more than May and the highest since December 2015.
Measured another way, preliminary feed costs per hundredweight of milk produced averaged $6.40 per hundredweight, down 75 cents from May. The milk margin over feed costs was $10.37 per hundredweight.
Dunn’s forecast of the average 2016 Pennsylvania all-milk price is $17.59 per hundredweight, down 88 cents (-4.8 percent) from 2015.
Northwest snapshot: Dairy margins
At a glance: Milk futures provide hope, but don’t eliminate uncertainty
Pacific Northwest dairy producers entered the third quarter of 2016 facing improving but uncertain milk prices, according to the latest Northwest Farm Credit Service dairy market snapshot.
Producers are hopeful recent increases in futures prices pull cash prices higher. However, while positive, futures prices are generally absent fundamental drivers – yielding optimism matched with questions.
The higher milk futures provided Northwest producers an opportunity to market a portion of 2016 production slightly above the cost of production.
Producers are working through expensive 2015 feed inventories. Weather and water conditions throughout the Northwest were mostly favorable, supporting crop growth. Crop progress was ahead of schedule, but wet weather added to hay quality challenges.
Lower quality feeder hay inventories were large, but high-quality dairy hay supplies were scarce. Offsetting that, corn silage prices are expected to fall from 2015 levels, reducing producer ration costs.
Dairy cow prices are stable to slightly lower. Holstein cows generally trade between $1,500 and $1,800 per head, while fresh cow prices are above $1,800 per head. Recently, a 700-cow herd in the Northwest sold for $1,300 per head, taking into account various stages of lactation and cull rates.
Dairy Margin Watch: June ended stronger
At a glance: Lower feed costs combined with some improvement in milk price
Dairy margins continued to strengthen over the last half of June, due to a combination of higher milk prices and sharply lower feed costs, according to the latest CIH margin watch report from Commodity & Ingredient Hedging LLC. In a reversal of fortune, margins are now projected positive for the third quarter of 2016 through the first half of 2017, with second-quarter 2017 margins above the 80th percentile of the previous 10 years.
Strength in the spot cheese market further bolstered milk prices, with both blocks and barrels trading higher over the last two weeks of June. Ongoing concerns over recent heat impacting cow comfort and milk production remain supportive of prices.
USDA’s latest monthly Production Report showed May output at 18.65 billion pounds, up 1.2 percent from last year, with the dairy herd revised down 4,000 head, but still the largest since December 2008.
The monthly Cold Storage report continued to reflect large stocks of dairy products. Inventories of natural cheese in cold storage reached 1.25 billion pounds at the end of May, up 3.3 percent (40 million pounds) from April, a month when the average increase over the past five years has typically been only 17.7 million pounds. Butter stocks in cold storage totaled 324.9 million pounds, up 29.2 million from April and up 22.5 percent from last year.
USDA Grain Stocks and Acreage reports issued on June 30 provided better news for corn feed prices, providing feed cost hedging opportunities.
The reports suggest both old-crop and new-crop corn ending stocks will be revised higher in the July World Ag Supply and Demand Estimates (WASDE) report and would help offset the effects of any potential weather issues that might arise.
Visit the Margin Manager website.
Iowa-Nebraska budgets still squeezed
At a glance: June margins remained negative
Iowa-Nebraska dairy margins improved slightly in June, but still didn’t move into positive territory, according to a monthly summary from Robert Tigner, University of Nebraska Extension agriculture educator.
Tigner analyzes dairy budgets for two production levels (20,000 and 24,000 pounds of milk per cow per year) and two management systems (freestall and tiestall barns).
The Iowa-Nebraska June average milk price was $14.46 per hundredweight.
• The breakeven price for a freestall herd with a 20,000-pound production average was $17.13 per hundredweight ($2.32 less than the milk price).
• The breakeven price was $15.42 per hundredweight for the freestall herd with a 24,000-pound average (about 85 cents less than the milk price).
• The breakeven price for a tiestall herd with a 20,000-pound production average was $18.64 per hundredweight ($4.18 less than the milk price).
• The breakeven price was $16.71 per hundredweight for the tiestall herd with a 24,000-pound average (about $2.25 less than the milk price).
California Class 1 milk prices
At a glance: August fluid milk price minimums increase
California's Class 1 minimum milk prices continued a stronger run in the second half of 2016.
August Class 1 North and South prices are up $1.50 from July 2016, but remained $1.29 less than August 2015. Through the first eight months of 2016, both are down about $2.11 from the same period a year earlier.
USDA will announce the August 2016 federal order Class I base price on July 20.
Class 1 North ($ per hundredweight)
August 2016 – $16.37
July 2016 – $14.87
August 2015 – $17.66
January-August 2016 – $15.49
January-August 2015 – $17.60
Class 1 South ($ per hundredweight)
August 2016 – $16.64
July 2016 – $15.14
August 2015 – $17.93
January-August 2016 – $15.76
January-August 2015 – $17.87
Source: California Department of Food and Agriculture
June global dairy price index
At a glance: World prices up 7.8 percent from May, but well below a year ago
Global consumers paid more for dairy products in June, but prices remained substantially lower than a year earlier, according to the latest United Nations’ Food and Agriculture Organization (FAO) Food Price Index.
The June 2016 FAO Dairy Price Index increased 7.8 percent from May. It remains 14 percent below June 2015. An uncertain outlook for the 2016-2017 milk year in Oceania and an April milk production decline in the European Union strengthened prices.
The dairy index includes global average prices for butter, cheese and skim milk and whole milk powders.
Globally, the FAO Food Price Index, a measure of monthly changes in international prices for five major commodities – cereal, vegetable oil, dairy, meat and sugar – rose 4.2 percent in June 2016. It’s still 1 percent less than a year ago.
Milk price outlook improves – July Ag Supply and Demand Estimates recap
At a glance: USDA sees slowdown in cow numbers
USDA’s July World Ag Supply and Demand Estimates (WASDE) report cut the 2016 U.S. milk production estimate, helping boost the annual price outlook by about 50 to 65 cents per hundredweight compared to a month ago.
• 2016 milk production was reduced about 200 million pounds from last month’s forecast, to 212.4 billion pounds. If realized, production would be up about 1.8 percent from 2015. The revised milk production forecast was based on a slowdown in the growth of cow numbers.
• 2017 milk production was raised about 300 million pounds from last month’s forecast, to 215.6 billion pounds. If realized, production would be up about 1.5 percent from 2016’s estimates. The production forecast was raised due to an improving relationship between milk prices (higher) and feed costs (lower), leading to another bounce higher in cow numbers.
As a result, Class III and Class IV price forecasts were raised for both 2016 and 2017, with the projected all-milk price at $15.55 to $15.85 per hundredweight for 2016 and $15.70 to $16.70 per hundredweight for 2017.
Read the full Progressive Dairyman report.
Farmers pocketed smaller share of 2015 dairy retail dollar
At a glance: Lower milk prices meant less returned to the farm
After spiking in 2014 thanks to record-high milk prices, the U.S. farmers’ share of every dairy dollar spent at retail declined in 2015, according to annual data compiled by the USDA.
USDA’s Economic Research Service calculated dairy farmers received about 29 cents for every $1 spent by consumers on dairy products in 2015, down from 38 cents in 2014 and the lowest share since 2009.
The overall percentage is based on a “basket” of dairy products typically produced by consumers during the year.
Looking at individual products in that basket, dairy farmers received about 48 cents for every $1 spent at retail for fluid whole milk in gallon containers, down 13 cents from 2014. Every $1 in retail cheese sales returned 29 cents, down 8 cents from 2014, and $1 sales in ice cream returned 18 cents, down from 22 cents a year earlier. Butter data has not been reported for the past two years.
Read the full Progressive Dairyman article.
Dairy, alfalfa provide better news in U.S. trade story
At a glance: Dairy product export volume was the highest in 11 months
U.S. dairy export volume posted an 11-month high in May (on a daily average basis), according to Alan Levitt with the U.S. Dairy Export Council. The strong showing was led by improved sales of whey, lactose and whole milk powder.
Despite improved dairy export volumes, U.S. agricultural trade turned in a third consecutive monthly deficit in May, the first time that’s happened looking back over USDA estimates dating back to late 1975.
The U.S. dairy cattle export market remained weak in May, with just 360 female dairy cattle replacements finding homes abroad. Foreign sales of U.S. dairy embryos increased to the highest level since December 2015.
U.S. alfalfa hay exports remain a brighter spot in what is turning into a deficit ag trade picture.
Read the full Progressive Dairyman article.
Are ag land values in an equilibrium?
At a glance: Good quality land still in demand
After a historic, decade-long run-up in agricultural land values, supply and demand might be reaching an equilibrium, according to Farmers National Company (FNC), one of the nation’s largest agricultural landowner services companies.
Overall average crop ground and grassland values have slipped from the highs of several years ago, but remain strong. As a result, demand for good land remains solid, but interest in lower quality crop ground and grassland is lower in most areas.
A recent survey of U.S. ag producers by the University of Purdue’s Center for Commercial Agriculture found that while most farmers expect a continued decline in land values, a majority still view farmland as a favorable investment.
When asked to evaluate farmland as an investment on a scale of 1 to 9 (1 being “extremely poor” and 9 being “extremely good”), 52 percent of respondents scored farmland favorably (a score greater than 5) and nearly one-quarter provided a neutral rating (a score equal to 5) for farmland as an investment.
Conversely, 23 percent of the farmers viewed farmland as a poor investment (a score below 5).
Read the full Progressive Forage article. PD
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Dave Natzke
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