Dairy profitability will increase on higher prices and lower feed costs

COLUMBIA, Mo.–Missouri dairy farmers should see steady milk prices with increased profitability in the second half of 2013. That was the message a University of Missouri Extension dairy economist delivered at the Jan. 17 AgMarketing Outlook Conference.

“We’ve moved from a really bullish scenario to more of a neutral one in the last month,” said Joe Horner. “That’s mostly because the milk production reports have started to show an increase in the herd and in milk production per cow.”

There were extremely high cow slaughter numbers throughout 2012. With high feed costs and strong demand for meat, it paid more to turn dairy cows and heifers into beef than to milk them, Horner says.

“In spite of all that, we have a herd that has started to slowly rise because a lot of people are practicing enhanced reproductive protocols,” he said. “So we are getting more heifers and we’re culling more and it is kind of a wait-and-see situation concerning what is going to happen to total numbers in the herd.”

Horner says milk production per cow is starting to rise slowly, although it is still below trend-line levels.

“We’ve been fighting this teeter-totter of coarser feeds this year, more drought-stressed forages, higher feed costs, higher ration costs, people not feeding their cows as well, but at the same time culling out all the low-end cows,” Horner said. “So we’ve been right at year-ago levels for the last six months, and finally late in the fall we started to pick up milk volumes on a per-cow basis.”

Milk production in other major dairy-producing countries has been down due to high feed costs. Horner says that domestic demand has been growing slowly, as have exports in both volume and value.

“Increasingly, our dairy prices are dependent in what is going on in the export market around the world,” he said. “Everyone is excited about China. China is a huge market and growth area for us, but Mexico tends to be our biggest customer. It is not rising as fast as China, but it is by far the largest buyer of U.S. dairy and it is continuing to rise.

“The estimated Missouri farm-level price for the first half of 2013 is $19.54 per hundredweight,” he continued. “We are forecasting a $20 farm-level milk price for the second half of 2013, and with any help at all on the demand side we think that could be higher. For all of 2013 we are forecasting about a $19.77 farm-level milk price in Missouri. That is down slightly from last fall, but should still be above break-even for the average producer in Missouri.”

Audio recordings of conference presentations are available for free download at agebb.missouri.edu/mkt/teleconf.