With milk futures prices nearing or at record highs, it’d be easy to sit back and enjoy a solid year that dairy farmers have long waited for. Of course, that’s not exactly the case because rising input costs are complicating the picture.
As an example of this, a poll on the February 24 Hoard’s Dairyman DairyLivestream asked the audience of nearly 150 farmers and industry professionals what farm profitability might look like this year. More than 40% of respondents thought it will be a year of minor profits. A small group responded “break even,” and 34% said that costs will eat up that milk check. Only 15% thought farms would “make a lot of money.”
That variance is likely a good indicator of the spread of results dairy producers will actually see this year, since the $20-plus per hundredweight (cwt.) price projections will be battling with various needs of expensive purchased feed as well as non-feed factors like fertilizer, interest rates, and milk hauling.
Phil Plourd, a long-time dairy market analyst and consultant, shared that he has certainly seen farms dealing with a current cost of production over $20 per cwt. The worst is for people needing to buy feed. In some places, he noted that dried distillers grains (DDGs) are hard to get simply because ethanol plants are not running as much.
Mark Stephenson reminded the audience of the saying that you “eat with your eyes first.” “That milk price is a lure, and then you have to think of how much costs are eating it up. That’s significant this year,” shared the dairy policy expert at the University of Wisconsin-Madison.
Even with these hurdles, the group was optimistic that margins will still be positive. Milk futures have kept up with grain futures or, at times, been ahead, Plourd noted. If that is enough for most farms will depend on the operation, but $22 to $23 milk has been able to cover average margins so far. “We’re amidst a fascinating race between milk futures prices and the prices of dairy commodities with grain prices,” the president of Blimling and Associates continued.
He added, “I still think farmers are going to make money if we took a snapshot of the board, but it is very bizarre times on the cost side.” On that note, Stephenson encouraged grabbing a piece of these current high milk projections while possible.
“Nobody ever went broke locking in a profit,” he said.
To watch the recording of the February 24 DairyLivestream, go to the link above. The program recording is also available as an audio-only podcast on Spotify, Google Podcasts, Apple Podcasts, and downloadable from the Hoard’s Dairyman website.
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