Dairy Outlook: December 2018

Pennsylvania All Milk Price is projected to oscillate between $18.00 and 18.50/cwt in the first half of 2019 given current futures. Though slightly higher than 2018, it still may be at or below an operation's breakeven.
Dairy Outlook: December 2018 - Articles

Updated:

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Mixed Markets as 2018 Ends

Both Pennsylvania and U.S. All Milk Price have been on the increase since July, reaching $18.10 & $17.40/cwt respectively in October 2018. This is the highest All Milk Price in nearly twelve months. Class III prices dipped in November, while Class IV continued a slow increase starting in July. Current Class III and Class IV futures show a continued decline to finish out 2018, before starting a slow rise through most of 2019. This will probably cause a slight decrease in All Milk Price for the remainder of 2018. Pennsylvania All Milk Price is currently projected to oscillate between $18.00 and 18.50/cwt in the first half of 2019 given current Class III and Class IV futures. Though slightly higher than 2018, it still may be at or below an individual operation's breakeven.

Projected feed costs remain a mixed message as well. Nationally, the price of corn, alfalfa hay, and soybean meal have declined in the second half of 2018. Pennsylvania has seen a similar decline in soybean meal and for the most part, corn grain. Alfalfa hay average prices for Pennsylvania markets increased in August, September, and October primarily due to inventory issues driven by weather adversity. These localized issues will probably continue into the first half of 2019. Overall feed costs in 2019 will likely be static, but have the potential to increase, driving milk margins even tighter. Due to the persistent precipitation through the second half of 2018, forage nutrient content and quality issues (mold growth, abnormal fermentation) are concerns on many of Pennsylvania's dairy farms.

USMCA Trade Agreement Reaches Final Stages

The United States-Mexico-Canada trade agreement was signed on November 30th, 2018 and when approved by Congress, will eventually replace NAFTA. For the dairy market, while dairy trading will remain the same with Mexico, market access gains in the form of new tariff rate quotas will be provided by Canada. That means that by year six of the agreement the following market access will be granted (and grow one percent annually for the next 13 years) for fluid milk (50,000 MT), cheese (12,500 MT), cream (10,500 MT), SMP (7,500 MT), butter and cream powder (4,500 MT), yogurt and buttermilk (4,135 MT) and for a number of other categories (USTR, 2018). Overall, Canada will grant an access of 3.5 percent to their $16 billion dairy industry. In addition, price classes six and seven will be eliminated by Canada in six months. However, the increased access will likely not change the price forecast as more would be needed to address the supply and demand issues that are decreasing milk prices. In addition, the retaliatory tariffs that were imposed by Mexico, Canada and China in July this year are still in place and will remain until the tariff on steel will be lifted. Studies estimate the damage to U.S. dairy farmers ranging between $1.2 to $1.5 billion for 2018 (Keefe, 2018).

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 2014-2016 was $9.00 ± $1.67 ($/milk cow/day) (Beck, Ishler, Goodling, 2018).

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 2015-2017 was $12.33 ± $2.29 ($/cwt) (Beck, Ishler, Goodling, 2018).

Figure 1: 12 month Pennsylvania Milk Income and Income over Feed Cost ($/milk cow/day)

²The 3 year average actual IOFC breakeven in Pennsylvania from 2015-2017 was $9.00 ± $1.67 ($/milk cow/day) (Beck, Ishler, Goodling, 2018).

Figure 2: 24 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 (Gould, 2018).

Table 3: 24 month Actual and Predicted* Class III, Class IV, and Pennsylvania All Milk Price ($/cwt)

MonthClass III PriceClass IV PricePA All Milk Price
Nov-17$16.88$13.99$18.90
Dec-17$15.44$13.51$18.40
Jan-18$14.00$13.13$17.00
Feb-18$13.40$12.87$15.90
Mar-18$14.22$13.04$16.00
Apr-18$14.47$13.48$16.40
May-18$15.18$14.57$16.70
Jun-18$15.21$14.91$17.00
Jul-18$14.10$14.14$16.20
Aug-18$14.95$14.63$16.40
Sep-18$16.09$14.81$17.10
Oct-18$15.53$15.01$18.10
Nov-18$14.44$15.06$18.40
Dec-18$13.88$14.94$18.04
Jan-19$14.20$14.87$18.09
Feb-19$14.61$15.01$18.36
Mar-19$14.97$15.23$18.65
Apr-19$15.36$15.53$18.21
May-19$15.59$15.77$18.44
Jun-19$15.78$15.97$18.63
Jul-19$16.08$16.20$19.00
Aug-19$16.34$16.33$19.19
Sep-19$16.56$16.40$19.34
Oct-19$16.48$16.50$20.10

*Italicized predicted values based on Class III and Class IV futures regression (Beck, Ishler, and Goodling 2018; Gould, 2018).

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, 2018)
  • Current Class III and Class IV Price (USDA Ag Marketing Services, 2018)
  • Predicted Class III, Class IV Price (Gould, 2018)
  • Alfalfa Hay: Pennsylvania and U.S. monthly Alfalfa Hay Price (USDA National Ag Statistics Service, 2018)
  • Corn Grain: Pennsylvania and U.S. monthly Corn Grain Price (USDA National Ag Statistics Service, 2018)
  • Soybean Meal: Feed Price List (Ishler, 2018) and average of Decatur, Illinois Rail and Truck Soybean Meal, High Protein prices, National Feedstuffs (USDA Ag Marketing Services, 2018)

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., Ishler, V.A., & Goodling, R. C. 2018. “Dairy Enterprise Crops to Cow to Cash Project,” the Pennsylvania State University. Unpublished raw data.

Dairy Records Management Systems. “DairyMetrics Online Data Report system”. Accessed 9/14/2017.

Gould, B. 2018. “Mailbox Price Forecaster". Dairy Marketing Tools website. University of Wisconsin-Madison. Accessed 12/5/2018.

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 12/5/2018.

Keefe, M., 2018. Executive Summary of Trade Deal's Impact on Dairy. Accessed 12/6/2018.

Microsoft 2016. “Forecast.ets function”, Office Help Website .

USDA National Ag Statistics Service, 2018. Agricultural Prices, Quick Stats version 2.0. Accessed 12/5/2018.

USDA Ag Marketing Services, 2018. Milk Marketing Order Statistics. Accessed 12/5/2018.

USDA Ag Marketing Services, 2018. “National Feedstuffs: Soybean Meal, High Protein”. Summary of USDA AMS Grain Reports. Accessed 12/5/2018.

USTR (2018) UNITED STATES–MEXICO–CANADA Trade Fact Sheet Agriculture: Market Access and Dairy Outcomes of the USMC Agreement. Accessed 12/6/2018.

The Dairy Outlook Newsletter is supported by an annual USDA RMA grant.

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