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May 10, 2016

Dairy Faces 'Painful' 2016 Summer

 |  By: Nate Birt

Although lower feed prices and higher producer equity mean today’s dairy market is in better shape than in 2009, a “painful” summer could lie ahead in 2016, says Mike North, Commodity Risk Management Group.

As of March, U.S. dairies had 10,000 more cows than in February, indicating herd expansion is underway in some locations, he points out.

“More milk equals more product, more product equals bigger inventories, bigger inventories equal smaller prices,” North says. “That’s going to be our cycle and the thing we’ll be up against as we go into and through summer. In 2009, it took until September before we saw production begin to decline and therefore prices begin to rebound. If that same type of reality exists this year, we’ve got a painful summer in front of us.”

He points out that at least two factors make today’s economic environment different than in 2009. The first is feed prices, which rose to elevated levels after 2008.

“We had corn that was put into the bunkers at $5, $6, $7 bucks,” North recalls. “It was brutal on the feed side, and we compounded that with the milk price that went to $9. It was bloody. A lot of equity was lost, guys were upside down in their milk checks monthly--$3, $4, $5 a hundredweight.”

The second factor to change is farmer equity, which has grown and helped today’s dairy producers.

“We’ve had some really nice years recently, so guys are in a little better financial position,” North says. “The bottom line is it will take a lot more than $13 milk to scare cows off of the farm.”

Click the play button below to watch the complete “AgDay” interview with North.