June 17, 2019

Will Late Planting Impact Milk Prices?

 |  By: Robin Schmahl

Greater concern is developing over feed supply for the upcoming year. Corn price has skyrocketed, increasing more than $1.00 per bushel since setting the low on May 13th. Planting has been at a record slow pace. This along with cooler weather and continued wet forecasts in some areas has triggered the upward momentum of grain prices.

Never mind that world grain stocks are large, although reduced on the recent World Agricultural Supply and Demand report, and that corn production in Brazil has been raised. There still is growing concern over just how small our crop could be. That will affect world corn price as more corn normally sourced from the U.S. would need to come from elsewhere. The market may price itself out of the world market, but the job of the market is to ration supply when it needs to and that is what is happening now even though we do not know exactly what total production will be. The market perceives there will be a significant decline of production. 

So what does this mean for milk prices? Historically, milk prices follow corn prices. However, there is a lag time of generally a few months. It takes a little while before higher feed prices fully impact milk production. There may be higher demand for dry corn this year as much of the late planted corn on dairy farms will be used for forage as it may not reach maturity. Late planted corn faces a risk of pollination in August which most often is not a good time due to hot weather. There is also risk of frost before the crop matures. 

The availability of alfalfa will also be an issue which will be another concern. Stocks are already tight and heavy winterkill in many some areas as well as delayed harvest will impact supply and price. Many alternative forages are being planted and will be a challenge for nutritionists as rations are balanced for optimal milk production. There has been the possibility of the government to allow for the possibility of forage to be planted and harvested on prevent plant acres this year prior to the usual November 1st date. If so, it will help to not only manage weeds on those acres, but also to keep them in production and alleviate some feed issues. 

Milk supply could tighten later this year as cow numbers and production per cow declines. If demand increases, milk prices will increase. Currently, there are large inventories of cheese which will provide a cushion for demand as supplies decline during the second half of the year. This would delay sustained price strength for a period of time. A settlement of the tariff war with China would also go a long way in improving export to that country over time. It would not change overnight as they have already found some alternative sources that have been contracted and the African swine fever devastation to their hog industry will keep demand for dry whey depressed for quite some time.  

It certainly will be an interesting year and one that will be filled with much volatility and probably sleepless nights. We will do the best with what we have and in the end we will have again learned much.