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Tight Margins Put the Squeeze on Dairies

by Lee Mielke

Published: Friday, February 12, 2021

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

Tight margins are returning to U.S. dairy farms as falling milk prices and rising feed costs take their toll. The USDA's latest Ag Prices report shows the December milk-feed ratio at 2.18, down from 2.58 in November and the lowest since May 2020, and compares to 2.57 in December 2019.

The index is based on the milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. One pound of milk could purchase 2.18 pounds of dairy feed of that blend in December.

The U.S. All-Milk price averaged $18.50 per hundredweight, down $2.80 from November and $2.20 below the December 2019 average.

California's All-Milk price fell to $19.20, down $3.80 from November and 60 cents below a year ago. Wisconsin's, at $18.10, was down $4.60 from November and $3.30 below a year ago.

The national average corn price averaged $3.97 per bushel, up 18 cents per bushel from November, which followed an 18 cent rise the month before, and a 21 cent rise in October. It was priced 26 cents per bushel above December 2019.

Soybeans averaged $10.50 per bushel, up 20 cents from November which followed a 67 cent rise from October, and $1.80 per bushel above a year ago.

Alfalfa hay averaged $169 per ton, up $2 from October but $3 per ton below a year ago.

The December cull price for beef and dairy combined averaged $58.10 per hundredweight, down $1.20 from November, after dropping 70 cents in November from October, and is $1.20 below December 2019 and $13.50 below the 2011 base average of $71.60 per hundredweight.

Milk cow replacements averaged $1,360 per head in January, up $20 per head from October and $60 above January 2020. They averaged $1,350 per head in California, unchanged from October but $50 per head below a year ago. Wisconsin cows averaged $1,470 per head, up $50 per head from October and $210 per head above January 2020.

In the week ending Jan. 23, 67,900 dairy cows were sent to slaughter, up 500 from the previous week and 100 head, or .15 percent, above a year ago.

StoneX said, "This may be a sign that the bearish market pressure is encouraging cows to be culled, but given that cull prices are still at a discount to 2020 levels we're inclined to believe that this slaughter is from cows that were held back to add production when prices were higher last year."

The Feb. 1 Early Morning Update said, "January marked the first month in the last six that dairy cows were being killed faster than replacements were being put into the herd. As both production and components have been stronger than anticipated recently, it is likely that if slaughter does not maintain this pace then supply will continue to outpace demand by a larger margin."

Clouds hang on dairy's horizon. U.S. milk output is gushing and several cooperatives have instituted supply management programs, even as milk is being dumped in some regions. Feed prices are rising rapidly. Dairy demand is uncertain, even with the arrival of COVID vaccines, and we don't know how the new administration will operate government feeding programs and assistance.

Matt Gould, editor and analyst of the Dairy and Food Market Analyst newsletter, added one in the Feb. 8 Dairy Radio Now broadcast, namely a shortage of shipping containers on the West Coast which, he said, is backing up inventories and hampering dairy exports.

This all has brought volatility and tension, he said. We saw extremes in 2020, cheese as low as $1 per pound and months later at $3, but he believes 2021 will be less extreme with milk prices "in the middle." "We're seeing craziness in the first half of the year," he concluded. "If we can get through it, we'll see a reverse pandemic in the second half, with solid dairy demand and dairy farmers should be just fine."

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