Even with the U.S. All-Milk price averaging above $22 per hundredweight (cwt.) for the first two months of 2023, profitability is suffering for most producers. It turns out that feed costs are largely to blame.

Comparing the first two months of 2023 with averages from 2010 to 2019 reveals that milk prices are $3.88 per cwt. higher. However, corn prices are also up $2.27 per bushel, soybean meal prices nearly $125 per ton higher, and alfalfa prices in the Dairy Margin Coverage (DMC) margin calculation have climbed almost $153 per ton. (Note, premium alfalfa prices for 2023 are being measured against the average alfalfa price that was used for most of 2010 to 2019).

This has left the January and February 2023 DMC margin $1.56 per cwt. lower than the average from 2010 to 2019. That’s taken place even with $22 milk. Help may be on the way regarding input costs, though.

A brighter crop forecast

The Prospective Plantings report issued by USDA provides some indication of possibly lower corn prices. The report pegged this year’s corn planting at 92 million acres, up from 88.6 million acres in 2022. Even though there is promise on the horizon, the weather this spring planting season could alter producers’ decisions from their intended plantings.

There has also been a notable easing of drought conditions in key alfalfa-producing states. Over the last three growing seasons, more than half of the nation’s alfalfa supply has come from just nine states: Idaho, California, Montana, Nebraska, Iowa, Wisconsin, South Dakota, Colorado, and Arizona. These states are collectively in much better shape from a drought standpoint than has been the case for many months.

Summer weather will be important in determining the actual production of the different feed categories. The Food and Agricultural Policy Research Institute (FAPRI), located at the University of Missouri, recently released its outlook for agricultural markets.

Assuming average weather, FAPRI projects a 15.3 billion bushel U.S. corn crop will be harvested this fall and that the season average corn prices will decline to $5.32 per bushel for the 2023 to 2024 crop year. This corn price is a decline of $1.37 per bushel from the 2022 to 2023 season average price. Current new crop corn futures suggest a similar easing in corn prices.

The current FAPRI projections also show soybean meal prices falling by more than $70 per ton in the 2023 to 2024 crop year.

Many moving pieces to a dairy operation’s bottom line today are creating challenges. If crop growing conditions are good this year, lower feed costs may provide the best opportunity to keep an operation’s bottom line in the black.

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(c) Hoard's Dairyman Intel 2023
April 10, 2023

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