The good news: Stronger November average milk prices and lower feed costs fueled the strongest monthly income margins for U.S. dairy farmers in quite some time. The bad news: November’s margin will likely be the peak as milk prices head lower into 2020.
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Dave Natzke
Editor / Progressive Dairy

The USDA released its latest Ag Prices report Dec. 27, including factors used to calculate November Dairy Margin Coverage (DMC) program margins and payments. The November DMC margin was estimated at $12.21 per hundredweight (cwt), up $1.33 per cwt from October and far above the highest insurable margin of $9.50 per cwt (Table 1). There will be no Dairy Margin Coverage (DMC) program indemnity payments at any level of coverage for a fourth straight month.

Table 1 DMC payments

November milk price hits $21

The November 2019 U.S. average milk price rose $1.10 per cwt from October to $21 per cwt. The average was $3.80 higher than November 2018 (Table 2) and is the highest monthly price since December 2014.

Table 2 Milk prices

Through November, the average 2019 U.S. all-milk price stands at $18.41 per cwt, $2.22 more than the same period a year ago.

Dairy farmers in four states saw milk prices increase at least $1.50 from October, led by a gain of $1.90 in Minnesota and Wisconsin.

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Compared to a year earlier, the average prices in Iowa, Minnesota and South Dakota were up more than $6 per cwt, and producers in three other states (Idaho, Oregon and Wisconsin) had increases of more than $5 per cwt.

Producers in Oregon ($24.60), South Dakota ($24) and Florida ($23.10) had the nation’s high prices in November; lows were in Michigan ($19.20), California ($19.50) and New Mexico ($19.90).

Feed costs lower

U.S. average corn, soybean meal and alfalfa hay prices were all down somewhat in November, helping reduce average total feed costs.

The November average alfalfa hay price used in the DMC calculations was $191 per ton, down $1 from October and the low for the year. Soybean meal averaged $303.13 per ton in November, down $6.35 per ton from October; corn prices averaged $3.68 per bushel, down 16 cents from October and the lowest since May.

That yielded an average DMC total feed cost of $8.79 per cwt of milk sold, down 23 cents from October (Table 3).

Table 3 DMC calculations

Looking ahead

The USDA’s DMC Decision Tool estimates margin ranges and payment probabilities based on current milk and feed futures prices. As of Dec. 26, DMC margins were expected to move lower in December 2019 through February 2020 and then hover between $10.15-$10.50 for much of the year.

DMC margins had a 13%-26% probability of falling below the top insurable level of $9.50 per cwt between March-September 2020 but less than a 5% chance of falling below $9 per cwt over the same period.  end mark

Dave Natzke