Dairy Outlook: April 2022

What Goes Up.....

The past few months have been a welcome change in evaluating milk markets.  Class III and Class IV have been on a steady incline rising to levels not seen since 2014. Figure 1 shows that currently, futures look to sustain these levels through 2022. There are several factors that are contributing to these milk prices. A large factor is the drop in milk production over the last few months. U.S. milk production is slightly below production from a year ago (Figure 2). During the same period commercial disappearance has been hovering at near record highs, and exhibited an average two percent increase in disappearance. For Pennsylvania, that reduction was even more pronounced, with production over two percent lower than January through March last year. Sustained high milk prices would be a welcome change to the muted annual prices the existed previously.

Figure 1: Twenty-four month Actual and Predicted* Class III, Class IV, and Pennsylvania All Milk Price ($/cwt)

*Predicted values based on Class III and Class IV futures regression (Goodling, 2022).

Figure 2: Monthly U.S. Milk Production vs. Commercial Disappearance

USDA Economic Research Service and USDA National Agricultural Statistics Service, 2022.

... Must Come Down

The joys of higher milk prices and greater milk checks entering bank accounts of producers is welcome news. The challenge is it is only part of the story. Supply chain disruptions in multiple sectors continue to ripple throughout the expense side of the business. Entering spring, cropping direct costs are rising at significant rates. Global market and feed supplies remain challenged. Feed costs per cow for the last year are twelve percent higher than the previous year in Pennsylvania, and double that from U.S. estimates (Table 1). And this only accounts for the changes through February 2022. Feed costs, like soybean meal, have continued to rise and are at levels not seen for nine years. Corn has also climbed to levels not seen in nearly ten years. Though these feed costs mute the profit margins available to producers right now, margins remain better than they have been for some time. Strategic monitoring of costs, production, and focus on risk management on both sides of the margin will help producers navigate the foreseeable future.

Income Over Feed Cost, Margin, and All Milk Price Trends

Table 1: 12 month Pennsylvania and U.S. All Milk Income, Feed Cost, Income over Feed Cost ($/milk cow/day)

¹Based on corn, alfalfa hay, and soybean meal equivalents to produce 75 lbs. of milk (Bailey & Ishler, 2007)
²The 3 year average actual IOFC breakeven in Pennsylvania from 2018-2020 was $7.94 ± $2.33 ($/milk cow/day) (Beck et. al., 2021).

Table 2: 12 month Pennsylvania and U.S. All Milk Price, Feed Cost, Milk Margin ($/cwt for lactating cows)

¹Based on corn, alfalfa hay, and soybean meal equivalents to produce 75 lbs. of milk (Bailey & Ishler, 2007)
²The 3 year average actual Milk Margin breakeven in Pennsylvania from 2018-2020 was $11.17 ± $3.00 ($/cwt) (Beck, et al., 2021).

Figure 3: Twelve month Pennsylvania Milk Income and Income Over Feed Cost ($/milk cow/day)

²The 3 year average actual IOFC breakeven in Pennsylvania from 2018-2020 was $7.94 ± $2.33 ($/milk cow/day) (Beck et. al., 2021).

Table 3: Twenty-four month Actual and Predicted* Class III, Class IV, and Pennsylvania All Milk Price ($/cwt)

*Italicized predicted values based on Class III and Class IV futures regression (Goodling 2022).

To look at feed costs and estimated income over feed costs at varying production levels by zip code, check out the Penn State Extension Dairy Team's DairyCents or DairyCents Pro apps today.

Data sources for price data

• All Milk Price: Pennsylvania and U.S. All Milk Price (USDA National Ag Statistics Service, 2022)
• Current Class III and Class IV Price (USDA Ag Marketing Services, 2022)
• Predicted Class III, Class IV Price (CME Group, 2022)
• Alfalfa Hay: Pennsylvania and U.S. monthly Alfalfa Hay Price (USDA National Ag Statistics Service, 2022)
• Corn Grain: Pennsylvania and U.S. monthly Corn Grain Price (USDA National Ag Statistics Service, 2022)
• Soybean Meal: Feed Price List (Ishler, 2022) and average of Decatur, Illinois Rail and Truck Soybean Meal, High Protein prices, National Feedstuffs (USDA Ag Marketing Services, 2022)

References

Bailey, K. and V. Ishler. "Dairy Risk-Management Education: Tracking Milk Prices and Feed Costs". Penn State Extension. Accessed 9/20/2017.

Beck, T.J., Gehrett, S., Ishler, V.A., Yost, C. & Goodling, R. C. 2021. "Dairy Enterprise Crops to Cow to Cash Project," the Pennsylvania State University. Unpublished raw data.

CME Group. "Class III Milk Futures Settlements". Accessed 4/22/2022.

CME Group. "Class IV Milk Futures Settlements". Accessed 4/22/2022.

Dairy Records Management Systems. "DairyMetrics Online Data Report system". Accessed 4/22/2021.

Ishler, V. "DairyCents Mobile App". Penn State Extension. #App-1010.

Ishler, V. "DairyCents Pro Mobile App". Penn State Extension. #App-1009.

Ishler, V. "Feed Price List". Personal Communication. Accessed 4/22/2022.

Microsoft 2016. "Forecast.ets function", Office Help Website.

USDA Ag Marketing Services, 2022. Milk Marketing Order Statistics. Accessed 4/22/2022.

USDA Ag Marketing Services, 2022. "National Feedstuffs: Soybean Meal, High Protein". Summary of USDA AMS Grain Reports. Accessed 4/22/2022.

USDA Economic Research Service, 2022. "Dairy Data". Commercial disappearance of milk in all products. Accessed 4/22/2022.

USDA Economic Research Service, 2022. "Milk Production". Accessed 4/22/2022.

USDA National Ag Statistics Service, 2022. Agricultural Prices, Quick Stats version 2.0. Accessed 4/22/2022.