calves
May 25, 2018

Milk Prices Benefit From Balance

 |  By: Mike Opperman

The growth in milk production has slowed—up just 0.6% in April—which is a good sign for dairy producers looking for milk price recovery. Taking a look inside the numbers, it’s apparent that one of the reasons for the production slow down is that the nation’s dairy herd is in balance.

Obviously milk production is based on two basic factors—the number of cows in the nation’s herd and how much they produce on a daily basis. Looking specifically at cow numbers, if the number of cows that get milked every day across the U.S. increases, milk production generally improves barring a drastic downturn in the amount of milk those cows produce.

The size of the milking herd fluctuates based on how many cows are culled and the number of replacements available to enter the herd. Over the past few years the number of replacements on dairy farms across the U.S. has been at an all-time high, due to any number of factors related to the use of sexed semen, genomics, better calf management and others. Add in the relatively low slaughter numbers and it’s easy to see why the U.S. dairy herd has grown at a relatively steady pace since about 2012. The graph included with this article, from Nate Donnay at INTL FCStone, shows this trend.

Replacements and cow slaughter

The graph also shows that since about the middle of 2017 we’ve started to see increased culling, bringing the slaughter and replacement numbers in closer proximity to one another. And as we head into the summer months when production per cow takes a hit, the first negative year-over-year increase in milk production in more than four years could be on the horizon. 

That’s good news for processors with plants at or beyond capacity, and great news for producers who are in year three of an economic downturn. Where will it lead?

 

Wisconsin dairy economists Bob Cropp and Mark Stephenson are optimistic. “By July, we could see $16 Class III prices,” says Cropp. “We’re already seeing some Class IV prices in the $15s on the futures market, and they had been below $13.”

 

Stephenson is even more optimistic. “I think you’re being stingy. I think we could get into the $17s on Class III,” he says.