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Views and opinions: Dairy herds may expand due to lower feed bill, higher milk prices

Dairy herds are expected to begin to expand as producers respond to higher milk prices and lower feed costs, according to the USDA. Milk per cow is expected to continue increasing, plus the forecast reflects the one extra day due to leap year. I’ll have more details next week.

Dairy margins improved over the second half of April on strength in milk prices and renewed weakness in feed costs according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

The MW reported that “Deferred margins are now approaching the 80th percentile of the previous decade, offering attractive opportunities for dairies to secure forward profitability. Strength in milk is being driven on the supply side, with USDA’s latest monthly production report showing the first year-over-year decline for March since 2013.”

“A combination of harsh winter weather and a continued decline in the milking herd sent U.S. milk output down 0.4 percent from 2018 to 19.1 billion pounds. The U.S. milking herd shrunk 10,000 head to 9.344 million, down 86,000 cows from last year. Milking productivity continued to improve, with output per cow up 0.5 percent from last year to 2,024 pounds per cow, but the improvement was not sufficient to offset the decline in the total milking herd.”

“Heifer slaughter in March totaled 797,300 head, up 10.7 percent from last year on a daily average basis with total first quarter slaughter up 9.5 percent from 2018. The USDA Cold Storage report was also slightly supportive for milk,” the MW states.

“Corn and soybean meal continue to decline with negative sentiment plaguing those markets, despite a slow start to the planting season and widespread rain across the U.S. Corn Belt,” the MW reports. “Hay prices remain high however due to tight inventory and harsh winter conditions. The December 1st hay stocks were at the lowest level since 2012,” the MW concluded.

Meanwhile, the latest World Agricultural Supply and Demand Estimates report issued Friday morning reduced the USDA’s projected milk production estimate for the sixth month in a row, blaming declining milk cow inventories and slow growth in milk per cow. Milk price estimates were raised.

The May 7 Global Dairy Trade auction (GDT) registered its 11th consecutive session of gain and while slowing the trajectory, extended the longest run of gain since the GDT began in 2008. The weighted average of products offered inched 0.4 percent higher, following a 0.5 percent rise on April 16, 0.8 percent on April 2. Sellers brought 33.9 million pounds of product to the market, down from 35.6 million on April 16.

 The gains were led by rennet casein, up 3.1 percent; skim milk powder, up 2.8 percent and anhydrous milkfat, up 1.4 percent.

The losses were led by buttermilk powder, down 10.3 percent, Lactose, down 2.7 percent; Cheddar cheese, down 2.4 percent; and whole milk powder was off 0.5 percent. Butter was unchanged, after it jumped 3.5 percent in the last event.

Cheese demand reports remain mixed in the Central U.S., according to Dairy Market News. Some pizza cheese producers report that sales are slower than expected but are ahead of last year. Spot milk prices remained steady as milk inventories have yet to meet flush levels of previous years. DMN says the average spot milk price was $2.50 under one year ago and $4.50 under two years ago during this week. Central cheese inventories are generally under control while national stocks remain long.

Cooperatives Working Together (CWT) members accepted 10 offers from CWT to help capture sales of 544,542 pounds of Cheddar and Colby Jack cheese, 846,575 pounds of whole milk powder, and 33,069 pounds of cream cheese. These products are going to customers in Asia, North Africa, and South America and will be delivered through October.

HighGround Dairy (HGD) reports that cheese exports surged to an all-time high in March, driven by continued strength from South Korea. The U.S. shipped 18.7 million pounds of cheese to South Korea in the month, up 39 percent from 2018 and moved the country to the top export destination for U.S. cheese for the first time since March 2015. Product moving to Mexico fell 17 percent, to 16 million pounds, lower versus February volumes but stronger versus January, according to HGD.

 Nonfat dry milk exports were down from a year ago but still marked the strongest monthly exports since October. Shipments to Mexico totaled 56.5 million pounds, down 19 percent versus prior year.

 This was the first year over year decline this year after shipments to Mexico were stronger in both January and February. Exports to the remainder of the top five destination countries were all stronger.

Dry whey exports continued lower into March but still marked the strongest monthly export volumes since November. China remained the top destination for U.S. whey, at 12.2 million pounds, down 34 percent from 2018, according to HGD.


The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.