In the most recent USDA Milk Production report, U.S. milk output was down 1% for the month of June compared to the year before. The Upper Midwest was the only region that experienced growth.
At the same time, indicators show that on-farm margins are improving. During an Ever.Ag Insights “Parlor to Plate” podcast, Managing Director Erica Maedke shared that the Dairy Margin Coverage program’s margins broke the $11 threshold in February and have been going up ever since. They are expected to average well over $12 per hundredweight, she said, for the foreseeable future. Maedke noted that a $9 to $10 margin is typically a break-even point for farmers.
With stronger margins, it seems the stage is set for milk production growth. However, theory may not become reality, explained Jon Spainhour.
On the theoretical side, the dairy broker said that decent margins on the spot basis and a nice margin moving out on the Class III and Class IV curve compared to feed prices would, historically, be an incentive to make milk. Yet, low replacement inventories, high cattle prices, heat waves, and avian influenza are just some factors that could temper potential growth.
Longer term, though, Spainhour said the industry is set up for more milk production, both here in the U.S. and in Europe. “We should not be surprised if we see milk production start increasing,” he noted.
Colin Kadis, a dairy market adviser for Ever.Ag, noted that there was a lot of pessimism and a lot of milk in the dairy industry a few years ago, and base programs were put into place during the COVID-19 pandemic. At that time, it seemed nearly impossible for people to start dairy farming if they weren’t already in, but Kadis said that may not be the case today. Some base programs have fallen apart or at least started to relax, he noted, and it seems there is an opportunity for expansion for those who want it.
The flip side is that costs are up. He said building costs have in some cases doubled, and farmers must take on a lot more debt to milk the same number of cows they could have a few years ago. Cow prices have also skyrocketed, and there simply aren’t that many replacements out there.
“While it does not seem like a good idea to bet against the American dairyman’s ability to make more milk, it does seem like it is going to be tougher,” he noted. For that reason, growth in cow numbers may be further out than the current margins would normally predict.
