With late calvings and continued mild weather, Upper Midwestern dairy producers are likely to see more milk production and downward pressure on milk prices the next several months. That’s according to Mary Keough Ledman of Keough Ledman Associates, a Libertyville, IL, dairy economics consulting firm.
“If we have a fairly mild summer – some heat but not humidity – we’re not going to see this significant drop in milk production in this region from June to July as we did last year. When we get the (Aug. 17 USDA) milk production report, we’re going to find out it was down maybe 2-3%, not 6-8%,” she said at the recent 4-State Dairy Nutrition & Management Conference in Dubuque, IA.
But two to three weeks of hot, humid weather could tighten the markets dramatically, Ledman hedged.
Growers and producers should look at what she called the “barometer of profitability of farms” – the milk-feed price ratio. That ratio includes the pound amount of a 16%-protein mixed dairy feed (41% corn, 8% soybeans and 51% alfalfa) that’s equal to the value of a pound of whole milk. “Ratios above 3.0 drive expansions; ratios below 2.0 tend to lead to contractions. We haven’t had a ratio over 2.0 since prior to 2001. It’s been a long slump.
“And I would argue that, if it weren’t for strong cull-cow, beef or dairy-steer prices, we would see a lot more contractions with the dairy sector than we have. High cull-cow prices and beef prices have been a saving grace to our industry and have provided much-needed cash flow to producers.”
Of the three feed components, corn is the most likely to fall in price, she predicted. “Soybean prices are not going to be less expensive and alfalfa, which is about half of this ration, is not going to be any cheaper, or significantly cheaper, or show the same type of percentage decline as we’ve seen in corn. Dairy rations still heavily influenced by alfalfa are not going to be a lot more inexpensive.”
Milk prices have dropped from an all-time high of $20.14 to $17.15/cwt this year, Ledman said. “USDA’s first estimate for 2013 is $17.50, so note we don’t see the disastrous year that we had in 2009.”
To stay in business, dairy producers around the country need a milk price of around $16.50/cwt, she pointed out.
“That’s pretty much the benchmark across the U.S. Farmers are telling us that’s what they need. But we’ve been adding cows here (in the Midwest) for the last couple of years. We will not see a major correction in price until we see a slowdown in the dairy herd.
“Where is all this milk at?” she rhetorically asked conference participants. Idaho, Washington and California increased milk production by 3.2% through April. “In March, California and Washington had so much that co-ops reinstituted some of the base programs that they employed in 2008 when we had large surpluses of milk. It’s worked; they reduced production.”
The Southwest, despite drought stress, gained 3.8% in production on top of strong gains in 2010 and 2011, she said. The Northeast, including Vermont, Pennsylvania and New York, showed a production increase of 1.4% while also contending with inclement weather.
Ledman expects overall milk production to increase by 2.5% in 2012, driven by a 2% gain in milk per cow and a slight 0.5% calving-percent increase.