August 28, 2018

EU and U.S. Producers Culling Heavily

 |  By: Fran Howard

Hardship on both sides of the Atlantic is forcing dairy producers to cull heavily, and that is expected to slow gains in world milk production. In the United States, the July year-over-year milking herd contracted for the first time since May 2016, while drought and record-breaking sweltering summer temperatures in parts of Europe is spurring heavy culling there.


“Years of disappointing milk prices have taken a toll on U.S. producers’ finances, dispiriting many and forcing a growing number to exit the business,” says Sarina Sharp, analyst with the Daily Dairy Report. “As harvest approaches, some dairy producers will face a difficult decision—either commit to the cost of putting up another year's worth of corn silage and other feeds or sell their herds before incurring another hefty expense.”


For the week ending Aug. 11, U.S. dairy producers sent 60,948 milk cows to slaughter, which was more than 6,000 head greater than the five-year average weekly volume for early August. It was also the largest slaughter volume for the second week of August (week 32) since 1986, the year the whole herd buyout was implemented, according to Sharp. The buyout program, part of the 1985 farm bill, was designed to remove 12 billion pounds of milk per year from the market in an effort to shore up milk prices and stem continued widespread losses on dairy farms.


The large-scale culling in early August appears to be the result of producers attempting to improve cash flow rather than making room for higher-producing cows. “Heifer supplies are large enough to maintain the dairy herd even with the accelerated cull rate,” Sharp notes. “But buyers are scarce, suggesting producers have no inclination to offset high slaughter volumes with heifer purchases.”


Springer prices at auctions across the country have fallen to levels not seen in decades, she says. “Dairy producers who send a heavy cull cow to slaughter will likely receive proceeds large enough to nearly cover the cost of a quality springer,” Sharp notes. “The combination of high slaughter volumes and cheap heifers suggests contraction in the U.S. dairy herd will likely continue.”


Severe drought and historically high temperatures across much of Europe have created hardship for dairy producers in Ireland, Germany, and other parts of Europe. Dairy producers who depend on summer pastures have been forced to buy feed, increasing their cost of production, which has sliced profit margins.


According to Teagasc, Ireland’s Agriculture and Food Development Authority, Irish dairy producers purchased 21% more feed in the first quarter of 2018 than in the comparable quarter a year earlier. Since then, the situation has worsened due to a cold, wet spring and summer drought that obliterated pastures. As a result, Teagasc notes that Irish dairy farmers have seen a 50% increase in feed costs. To preserve dwindling feedstocks and limit feed costs, producers in Ireland have had no choice but to cull heavily, she says.


In Germany, where the highest summer temperatures since 1881 have been reported, grain production is expected to fall by about 22%, according to the German Farmers Association DBV. As a result, German dairy farmers are also being forced to reduce their herds by sending more cows to slaughter. 


For the first five months of 2018, EU heifer and milk cow slaughter volume climbed 3.1% above the comparable period in 2017, according to Eurostat. “That was before the feed situation turned dire this summer,” Sharp notes. “Heavy cow culling suggests that growth in milk output will remain slow in the world's two largest milk production regions.”

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