Dairy Herd Continues to Expand

What’s Happened…

Class III milk futures slipped into new low-price levels for the year this past week, reflecting increasing supplies due to herd expansion. Inexpensive feed, increased efficiency, and high beef prices have contributed to the decision for many to increase production.  

The USDA August Milk Production report (July numbers reported in August) indicated July’s production for the top 24 milk-producing states was18.8 billion pounds, 3.5% higher than the same time the previous year. Milk per cow came in at 2,081 pounds for July, an increase of 36 pounds, more than 1 pound per day on average. Calf prices, especially those for beef, fetched record-high prices, encouraging producers to keep older cows in the cycle and, at the same time, hold heifers to grow the herd. The herd now stands at 9.04 million cows, an increase of 154,000 from July 2024 and 8,000 cows more than June.  

Why this is Important…

Historically, the milk futures market is a good example of high prices curing high prices, and low prices curing low prices. To add to the woes of milk over-production, however, may be the mindset by some producers (if not many) who feel they need to out-produce their neighbor in order to “survive.” Ultimately, this adds even more supply for the market to absorb.  

For producers, recognizing these fundamental forces can help develop a strategic marketing approach. Though prices are down, history indicates they can go even lower. Prices may have to get low enough where it just does not pay to add production. Currently, the market may be getting close to this price level, yet there is no sign that producers are making changes other than adding to production.

What can you do about it?

Milk producers need to take time to develop an approach to shift risk and then weigh the pros and cons of various strategies to see if changes need to occur. Without taking the time to do this, you are hoping “things” will improve. There’s an old saying, “hope is not a strategy.” Communication is huge. Marketing never takes a day off. There are many tools available that can be implemented. Create a working knowledge of your marketing alternatives. Another saying is: “use the right tool at the right time that best fits you and your operation.”

Find out what works for you… 

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally-charged responses to market moves, which are always dynamic.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions. 

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

Author

Bryan Doherty