Dairy Outlook: September 2018

Milk prices remain on the low side of a four-year modest price range. Monitoring a producer's individual price regularly is vital to see trends and potential opportunities at the farm level.
Dairy Outlook: September 2018 - Articles

Updated: September 13, 2018

Dairy Outlook: September 2018

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Renovated Dairy Outlook

Please note that there has been a change in the 24 month Actual and Predicted Class III, Class IV, and Pennsylvania All Milk Price ($/cwt) (Figure 3 and Table 3). Due to adjustments in data availability, the average Mailbox price has been replaced with the Pennsylvania All Milk Price. This price is then regressed against the current and future Class III and Class IV prices (Beck, Ishler, Goodling, 2018; Gould, 2018). It is important to note that the All Milk Price encompasses all milk classes (I thru IV) utilized from Pennsylvania, and is before deductions for hauling and marketing. Figure 1 depicts the actual annual gross milk price for farms evaluating their annual cash flow (Beck, Ishler, Goodling, 2018). Despite the normal highs and lows annually, there is still continuous price variation across farms. A producer's individual price is very dependent on their location, milk market, component composition, and milk quality. It is vital to monitor this within herd over time to see trends and potential opportunities at the farm level.

Figure 1: Six Year Annual Average Gross Milk Price for Pennsylvania Farms

* 2018 is based an current averages of 20 farms reporting monthly IOFC data (Beck, Ishler, Goodling, 2018).

Global Influences

The U.S. dairy industry is still caught up in a perfect storm with increasing production, decreasing domestic dairy consumption, and the restriction of export markets through tariffs. Despite the low milk prices, national cow inventories are above last year (but have been decreasing) and more milk is still entering the market. Producers are likely adding milk to spread the debt loss over more production units. All this is with a medium-term outlook for lower dairy prices over the next two to three years according to the LMIC (McCullock, 2018).

Trade negotiations are still ongoing, most notably with Mexico and Canada. However, it is important to separate tariff issues from trade issues because tariffs can change at any time, which greatly adds to current market uncertainty. For example, Mexico, the biggest U.S. trading partner in cheese implemented tariffs on cheese on July 5. Chinese tariffs on dairy and Canadian tariffs on yogurt hit on July 1. The effect is showing up in agricultural commodity prices. The latest from the Bureau of Labor Statistics has overall agricultural export prices declining 5.3% in July 2018. Meanwhile, USDA officials have announced the breakdown of the $12 billion federal farmer tariff aid program. The support for dairy producers amounts to $127.4 million, with producers being compensated $0.12/cwt as determined through the MPP formula. In addition, $84.9 million is set aside to buy up dairy through the federal food purchase and distribution program.

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 2: 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 3: 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
Aug-17$16.44$15.89$18.00
Sep-17$15.45$16.60$18.70
Oct-17$16.57$16.61$19.30
Nov-17$16.36$15.86$19.20
Dec-17$16.69$14.85$18.80
Jan-18$16.88$13.99$18.90
Feb-18$15.44$13.51$18.40
Mar-18$14.00$13.13$17.00
Apr-18$13.40$12.87$15.90
May-18$14.22$13.04$16.00
Jun-18$14.47$13.48$16.40
Jul-18$15.18$14.57$16.70
Aug-18$15.21$14.91$17.00
Sep-18$16.52$14.97$17.26
Oct-18$16.71$15.33$17.91
Nov-18$16.63$15.51$19.15
Dec-18$16.42$15.49$19.43
Jan-19$16.09$15.48$19.49
Feb-19$15.90$15.53$19.25
Mar-19$15.92$15.67$19.09
Apr-19$16.01$15.86$19.03
May-19$16.00$15.95$18.87
Jun-19$16.11$16.13$19.01
Jul-19$16.21$16.24$19.06
Aug-19$16.34$16.35$19.24

*Italicized predicted values based on Class III and Class IV futures regression (Beck, Ishler, & 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.

Bureau of Labor Statistics. August 14, 2018. U.S. Import and Export Price Indexes summary: Accessed: August 31, 2018

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 9/4/2018.

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 9/4/2018.

McCullock, K. 2018. Dairy Situation and Outlook - LMIC. Presentation at the Extension Outlook Conference in Kansas City, August 2018.

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

USDA.2018. USDA Announces Details of Assistance for Farmers Impacted by Unjustified Retaliation : Accessed: August 31, 2018

USDA National Ag Statistics Service, 2018. Agricultural Prices, Quick Stats version 2.0. Accessed 9/4/2018.

USDA Ag Marketing Serivces, 2018. Milk Marketing Order Statistics. Accessed 9/4/2018.

USDA Ag Marketing Services. 2018. “National Feedstuffs: Soybean Meal, High Protein”. Summary of USDA AMS Grain Reports. Accessed 9/4/2018.

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

More by Virginia A. Ishler 

Dairy Profitability and Sustainability Equine Farm Animal Welfare Livestock Profitability and Sustainability Poultry Profitability and Sustainability

More by David L. Swartz 

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

More by Robert C. Goodling, Jr. 

Production Economics Local food systems Agricultural Policy Analysis Economics of Animal and Zoonotic Diseases

More by Claudia Schmidt, Ph.D.