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November dairy economic update: Make winter plans

Progressive Dairyman Editor Dave Natzke Published on 01 November 2017

The transition to colder temperatures has been accompanied by cooler markets. Here’s a look back at factors affecting prices and margins.

September milk prices dip

September 2017’s U.S. average milk price of $17.80 per hundredweight (cwt) was down 20 cents from August, and up just 40 cents compared to September 2016, according to the USDA’s monthly Ag Prices report. The January-September 2017 average of $17.59 per cwt is $1.79 more than the same period a year earlier.

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Among individual major states (Table 1), Idaho, Iowa, Utah, Virginia and Wisconsin posted small gains (+10 to +20 cents) compared to a month earlier; California led decliners (-62 cents).

Compared to a year earlier, September 2017 milk prices were up $1.20 in Washington and 90 cents in Ohio and Pennsylvania. Only New Mexico saw a price decline, down 20 cents compared to a year earlier.

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MPP-Dairy margin shrinks a little

Combined with higher soybean meal and alfalfa prices, the lower milk price tightened U.S. average income margins for September, at least according to MPP-Dairy calculations.

September’s soybean meal price was up $6.65, to $307.70 per ton. Alfalfa hay averaged $149 per ton, up $2 from August. The U.S. average price for corn received by growers was unchanged from August, at $3.27 per bushel. The overall feed cost was $7.81 per cwt of milk sold, up 8 cents from August (Table 2).

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Subtracted from the average milk price, the September MPP-Dairy income margin was $9.99 per cwt, down 28 cents from August.

The September MPP-Dairy calculations are the first half of two-month factors used to determine potential payments for the September-October pay period. The October MPP-Dairy margin and September-October pay period margin will be announced Nov. 30.

Based on milk and feed futures prices as of Oct. 30, the Program on Dairy Markets and Policy projected monthly MPP-Dairy margins to decline through May 2018, bottoming out below $8.50 per cwt. Those margins are above MPP-Dairy indemnity payment triggers, but watch markets for changing conditions.

Read also: Weakening dairy margins may be pulling MPP-Dairy back into play for 2018

Replacement cow prices steady

U.S. dairy replacement cow prices are ending the year about where they began. However, prices could be pressured lower as cash-strapped dairy farmers seek to sell surplus heifers.

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Preliminary October 2017 U.S. quarterly replacement dairy cow prices averaged $1,610 per head, just $10 less than both January and July 2017, and $80 per head less than October 2016 (Table 3).

National average replacement cow prices are now $510 (24 percent) less than when they last peaked at $2,120 per head in October 2014.

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The USDA estimates are based on quarterly surveys (January, April, July and October) of dairy farmers in 23 major dairy states, as well as an annual survey (February) in all states, according to Mike Miller, with USDA’s National Ag Statistics Service. The prices reflect those paid or received for cows that have had at least one calf and are sold for replacement purposes, not as cull cows. The report does not summarize auction market prices.

Among major dairy states, October 2017 average prices ranged from a high of $1,750 per head in Colorado to a low of $1,490 in Virginia. A handful of states – Florida, Iowa, Michigan, Minnesota, Oregon, Pennsylvania, Texas and Virginia – saw October replacement cow prices slightly higher than July.

Tony Clayton, Clayton Agri-Marketing, Jefferson City, Missouri, said he’s fielding calls almost daily from dairy farmers seeking to sell heifers to generate cash.

September cull cow prices dip

September 2017 cull cow prices (beef and dairy combined) averaged $69.90 per cwt, down $6.40 from August and $4.60 per cwt less than September 2016. Year-to-date, the cull cow price average is $71.54 per cwt, down $7.38 from January-September 2016.  end mark

Dave Natzke
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