Dairy Outlook: June 2018

Milk price continued slow climb, but milk margins remain tight. Current tumultuous environment in global trade may limit long term progress.
Dairy Outlook: June 2018 - Articles
Dairy Outlook: June 2018

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Dairy Market Outlook

April All Milk Prices continued the upward movement for the second month. Pennsylvania feed costs increased slightly while U.S. costs held steady, resulting in slightly better margins. The first quarter of 2018 resulted in an average All Milk Price of $16.33/cwt, and an average margin of $10.28, which remains below the 3 year average breakeven margin of $12.33. Short term projections show a continued strengthening in the margin as a result of stronger milk price forecasts and softer feed costs. However, the current tumultuous environment in global trade may limit long term progress.

Class Utilization Shifts in the Northeast

For the last several months, PA All Milk Price was nearing the levels of the national All Milk Price. Some of this can be explained by the milk class utilization trends for Northeast Federal Order 1 (Figure 1) and Mideast Federal Order 33 (Figure 2), the 2 orders impacting Pennsylvania. For comparison, the national trends for all federal orders (Figure 3) were also examined. PA has essentially lost 15% utilization of Class I over the last 7 years, approaching the national average. With relatively constant Class II and Class III utilization, the Class I loss has gone to Class IV, resulting in weaker than normal prices in Pennsylvania. As this price shift continues to occur, dairy operations will need to be strategic in reducing their cost of production to be more competitive in a non-Class I environment.

Figure 1: 10 year Northeast Federal Order 1 - Percent Milk Utilization by Class

Ag Marketing Service, USDA 2018.

Figure 2: 10 year Mideast Federal Order 33 - Percent Milk Utilization by Class

Ag Marketing Service, USDA 2018.

Figure 3: 10 year All Federal Orders - Percent Milk Utilization by Class

Ag Marketing Service, USDA 2018.

Income over Feed Cost, Margin, and Mailbox 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 4: 12 month PA Milk Income and Income over Feed Cost

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 5: 24 month Actual and Predicted* Class III, Class IV, and Pennsylvania Average Mailbox 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 Average Mailbox Price ($/cwt)
MonthClass III PriceClass IV PriceAverage PA Mailbox Price
Apr-17$15.22$14.01$16.43
May-17$15.57$14.49$16.32
Jun-17$16.44$15.89$17.17
Jul-17$15.45$16.60$17.40
Aug-17$16.57$16.61$18.25
Sep-17$16.36$15.86$17.83
Oct-17$16.69$14.85$17.49
Nov-17$16.88$13.99$17.61
Dec-17$15.44$13.51$17.04
Jan-18$14.00$13.13$16.01
Feb-18$13.40$12.87$15.57
Mar-18$14.22$13.04$16.08
Apr-18$14.47$13.48$15.59
May-18$15.17$14.55$16.47
Jun-18$15.66$15.56$17.22
Jul-18$16.49$15.96$17.86
Aug-18$16.93$16.18$18.19
Sep-18$17.05$16.25$18.29
Oct-18$16.92$16.31$19.07
Nov-18$16.72$16.34$18.98
Dec-18$16.53$16.34$18.88
Jan-19$16.24$16.06$18.58
Feb-19$16.17$15.92$18.48
Mar-19$16.10$16.03$18.50

*Italicized predicted values based on Class III and Class IV futures regression (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 Teams DairyCents or DairyCents Pro apps today.

Data sources for price data

All Milk Price: Pennsylvania and U.S. All Milk Price (USDA, 2018)

Predicted Class III, Class IV, and Pennsylvania Mailbox Price (average of the Eastern and Western PA mailbox Price) (Gould, 2018)

Alfalfa Hay: Pennsylvania and U.S. monthly Alfalfa Hay Price (USDA, 2018)

Corn Grain: Pennsylvania and U.S. monthly Corn Grain Price (USDA, 2018)

Soybean Meal: Feed Price List (Ishler, 2018) and average of Decatur, Illinois Rail and Truck Soybean Meal, High Protein prices, National Feedstuffs (Gould, 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. “Predicted Mailbox Prices". Understanding Dairy Markets website. University of Wisconsin-Madison. Accessed 6/2/2018.

Gould, B. 2018. “National Feedstuffs: Soybean Meal, High Protein”. Summary of USDA AMS Grain Reports. Accessed 6/2/2018.

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 6/5/2018.

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

USDA NASS, 2018. Agricultural Prices, Quick Stats version 2.0. Accessed 6/5/2018.

USDA AMS, 2018. Milk Marketing Order Statistics. Accessed 6/5/2018.

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

Authors

Dairy Business Management Dairy Nutrition

More by Timothy Beck 

Dairy Herd Management Dairy Cattle Nutrition Dairy Feed Management Dairy Cattle Feed Management Dairy Business Management Dairy Cattle Business Management

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Data and Records Management Dairy Profitability and Management Dairy Genetics and Reproduction

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