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Margins and Milk Production On The Rise

by Matt Z

While there are a lot of good reasons we'll be glad to say good-bye to April...dairy markets won't be one of them. Although we've had a bit of a post Easter dip, milk prices have been strong this month, and most analysts agree that the April milk price will set the bar for the price of milk for the year. As a result of the strong market, milk production is expected to rise through the second half of 2014 and dairy economist are expecting that will result in a lower price for milk. The USDA is now forecasting milk production to be up 2.4% over last year levels although so far this year production is up by just 1%. Part of the reason for that is here in the Midwest production has been flat to below year ago levels mostly because of lower quality feed and the lingering cold weather. Economists like Bob Cropp feel another reason for the slow rise in production is that some dairymen instead of adding more cows, are paying down debt caused by the depressed milk market of 2009....and the higher feed costs of 2012 and the winter of 2013.

Even if production falls short of expectations, it will be up, thanks to cheaper feed and better quality forages. Now prices may also be pressured by competition on the export market since increased production in New Zealand and the EU has resulted in lower world market prices which could take away the competitive advantage U. S. dairy has been enjoying. Also, even with just an average crop, feed costs will be down from the past two years.... so we will be seeing more production per cow plus some increase in cow numbers

All that said, dairy margins should be strong this year...thanks to a reduction in feed costs and higher returns for milk. As always weather is your wild card and something to keep an eye onbut dairy economists like Mark Stephenson from the UW in Madison feels that even if milk prices are down from 2013 those cheaper input costs will provide good producer margins.