Dairy Outlook: August 2019

ROBERT C. GOODLING, JR. , DAVID L. SWARTZ

Income over feed cost has remained relatively flat for several months despite modest increases in milk price. Feed price uncertainty continues to erode gains in milk price for the first half of 2019.

IOFC remains flat, improvements on the horizon

The latest data to estimate IOFC were June 2019, and it shows continued slow improvement in milk price and milk income, but uncertainties in the feed markets (particularly corn) are holding IOFC steady. Milk prices should continue to strengthen. The average Class III futures for the second half of 2019 rose $1.22/cwt to $17.35/cwt since the prices used in the June outlook. Class IV futures in the same time frame rose $0.41/cwt. That current average is 19% higher than the established Class III price for 2018, and along with DMC payments, should help 2019 reduce the immediate cash flow stress on Pennsylvania dairy operations.

 





 

Feed costs remain a stress to that recovery and reinvestment. Planting and growing conditions this year have been challenging and may impact the quantity and quality of home raised and purchased feeds. Despite the weather issues, recent estimates by USDA for improved 2019 corn and soybean yields provided some relief to those market prices. These yield adjustments impact on near term estimated feed costs remain to be seen.

Domestic supply continues to outpace utilization

The first half of 2019 has realized a slowing of domestic milk supplied to markets as well as a slight increase in domestic disappearance (Figure 1). Estimated on a daily basis, Figure 1 shows how 2019 is comparing to the annual daily estimates for the last twenty-four years. June’s daily milk marketed (total production less farm use) on a milk-fat basis was 605 million lbs., down from 612 million in May. Daily domestic commercial disappearance for June was 584 million lbs., up 2 million from May. While domestic supply and demands across all milk products have increased, milk marketed has outpaced commercial disappearance since 2010. If the 2019 trend continues, it’s annual average could be just the third production decreased from the previous year in the past twenty four years. Fluctuating commercial imports and exports as well as growing commercial stocks have the potential to subdue milk price despite supply demand corrections.

Figure 1: Twenty-four Years of Domestic Marketing and Disappearance of All Milk Products on Milk-Fat Basis (million lbs/day)

Estimated daily production based on annual (1995-2018) and monthly (2019) estimates (USDA, 2019).

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 2015-2017 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 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 3: 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 (CME, 2019).

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

Month Class III Price Class IV Price PA All Milk Price
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 $18.00
Dec-18 $13.78 $15.09 $17.60
Jan-19 $13.96 $15.48 $17.70
Feb-19 $13.89 $15.86 $17.90
Mar-19 $15.04 $15.71 $18.50
Apr-19 $15.96 $15.72 $18.30
May-19 $16.38 $16.29 $18.60
Jun-19 $16.27 $16.83 $18.80
Jul-19 $17.55 $16.90 $20.05
Aug-19 $17.44 $16.74 $19.76
Sep-19 $17.82 $17.03 $20.05
Oct-19 $17.77 $17.21 $20.99
Nov-19 $17.59 $17.24 $20.97
Dec-19 $17.18 $17.16 $20.84
Jan-20 $16.81 $16.99 $20.42
Feb-20 $16.66 $17.05 $20.44
Mar-20 $16.65 $17.19 $20.52
Apr-20 $16.77 $17.25 $19.90
May-20 $16.81 $17.39 $20.01
Jun-20 $16.90 $17.51 $20.12
Jul-20 $17.03 $17.69 $20.37

*Italicized predicted values based on Class III and Class IV futures regression (Beck, Ishler, and Goodling 2018; CME, 2019).

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, 2019)
  • Current Class III and Class IV Price (USDA Ag Marketing Services, 2019)
  • Predicted Class III, Class IV Price (CME, 2019)
  • Alfalfa Hay: Pennsylvania and U.S. monthly Alfalfa Hay Price (USDA National Ag Statistics Service, 2019)
  • Corn Grain: Pennsylvania and U.S. monthly Corn Grain Price (USDA National Ag Statistics Service, 2019)
  • Soybean Meal: Feed Price List (Ishler, 2019) and average of Decatur, Illinois Rail and Truck Soybean Meal, High Protein prices, National Feedstuffs (USDA Ag Marketing Services, 2019)

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.

CME Group. “Class III Milk Futures Settlements“. Accessed 8/5/2019.

CME Group. “Class IV Milk Futures Settlements“. Accessed 8/5/2019.

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

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 8/5/2019.

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

USDA Ag Marketing Services, 2019. Milk Marketing Order Statistics. Accessed 8/5/2019.

USDA Ag Marketing Services, 2019. “National Feedstuffs: Soybean Meal, High Protein”. Summary of USDA AMS Grain Reports. Accessed 8/5/2019.

USDA Economic Research Service 2019. “Dairy Data: Commercial disappearance of all milk in all products (monthly and annual)“. Accessed 8/13/2019.

USDA National Ag Statistics Service, 2019. Agricultural Prices, Quick Stats version 2.0. Accessed 8/5/2019.

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