In your February issue . . .
MILK PRICE PROSPECTS softened throughout January due to the combination of stronger milk production and dampening dairy demand. At the beginning of the new year, February-to-June Class III contracts netted $18.65 on the CME. By February 2, those same contracts slipped to $18.25. July-to-December Class III futures moved from $19.85 to $19.60.
THE IMPACT ON CLASS IV WAS EVEN DEEPER as February-to-June contracts dropped 45 cents in the first month of trading to settle at $18.95. Class IV contracts for the final six months of the year slid by 65 cents, moving from $20.32 to $19.67 per hundredweight (cwt.).
“WE HAVE A LITTLE TOO MUCH SUPPLY and a little less demand to start the dairy year out,” shared Rabobank’s Mary Ledman. In making those comments, Ledman was giving a very high-level outlook on supply and demand from both a domestic and global perspective.
AFTER A BIG MARKET BOOM, BUTTERFAT pay prices slid to $2.77 per pound in January milk checks under Federal Milk Market Order provisions. In June 2022, butterfat set a record at $3.33 per pound and then set new marks in each of the next five months, peaking in November at $3.37. December slid to $3.15. Protein fetched $2.80 per pound in January.
MOVING IN AN OPPOSITE DIRECTION, feed markets actually climbed with spot corn rising from $6.70 to $6.80 per bushel. Soybean meal futures also bounded upward from $465 to $492 per ton during trading from January 3 to February 2 at the CME. Most analysts indicate there is more upside feed price risk than potential for downside relief.
“WHEN IT COMES TO THE 2023 DAIRY PRICE, the word would be anxiety,” said Ever.Ag’s Katie Burgess. “We all learned this in recent years — it only takes a little spark to make dairy markets move.”
DAIRY MARGIN COVERAGE (DMC) PAYMENTS likely will begin in January given falling milk values and strong feed costs. However, there were no payments in December as the $24.70 All-Milk price covered feed costs in the DMC equation. Feed values were: $6.58 per bushel corn, $463 per ton soybean meal, and $327 per ton Premium alfalfa hay.
“BE SURE TO LOCK IN PROFITS or establish a floor,” advised Burgess. “How a farm manages its risk in 2023 will matter. How one manages risk will determine winners and losers in the dairy business.”
THE FLOOR WILL LOOK DIFFERENT depending on where one produces milk. “If I had to peg the cost of production in the Upper Midwest, it would be $20,” shared Burgess of the cost of producing milk on a cwt. basis. “The western U.S. is $2 to $3 per cwt. higher. There is a tight margin picture this year,” continued the economist.
DRIVEN BY BOTH DEMAND and high rearing costs, springing heifers held at $1,720 in January, within $10 of October, reported USDA’s Agricultural Prices. While Utah had the lowest price at $1,450, Arizona, California, Indiana, Michigan, Pennsylvania, and Wisconsin were over $1,800 per head. One year earlier, dairy replacements fetched $1,340 nationally.
SHRINKING TO THE LOWEST LEVEL SINCE 1962, the U.S. beef cow herd stood at 28.9 million head. That was down 4% from the previous year as ranchers culled more heavily due to drought and high feed costs. Overall, there were 89.3 million head of cattle, the smallest national herd since 2015. This situation continues to drive the beef-on-dairy narrative.
THE U.S. CONTENDS CANADA’S DAIRY SECTOR continues to manipulate the dairy tariff-rate quotas agreed upon in the United States-Mexico-Canada Agreement (USMCA). As a result, U.S. Trade Representative Katherine Tai established a second formal dispute settlement case to open doors for a wide array of U.S. dairy exports based on the signed USMCA.
