Beef on Dairy Keeps Milk Supplies on the Rise

What’s Happened…

Milk prices have been on a continuous downward slide since 2024 with a minor recovery in April, giving way to further declines and new contract lows for several futures contracts in recent weeks. Monthly production reports continue to reflect more production due to additional cows and more milk per cow. In addition, a catalyst to increasing supplies is the price for beef calves. Crossbreeding beef with dairy cows has become a prevalent practice and, for many operations, a dependable and needed revenue stream. If beef supply remains low and prices high, it is likely that the dairy industry will continue to be a pipeline for beef supplies, an additional incentive for dairy producers to grow their herds.

Why this is Important…

The structure of an industry can change over time. Farming is no different. The dairy industry continues to change due to innovation, efficiency, and economies of scale (larger operations). The milk market has a history of low prices curing low prices and high prices curing high prices. In past decades, milk futures reflected this trend. The herd might contract and extend in a three-to-five-year price cycle. That cycle is changing. The industry is in a long-term expansionary phase for a couple of reasons.  

One is the capitalization of dairy farms. As farms get bigger, financing takes a long-term view. In essence, lenders are inclined to stay entrenched with a larger dairy for a longer period. The other factor comes from the beef industry, which needs supply. The implication is a longer time before herd contraction. The three-to-five-year cycle may become a five-to-seven-year cycle, with milk spending more time in a trough of low prices and less time at higher prices. When price rallies do occur, expect them to be short-lived, much like the price recovery experienced this past winter. 

What can you do about it?

Dairy producers need to be forward thinking in an environment where supply is likely to continue to increase. Demand will grow, and when it does, it takes a long time for consumers to see low prices. Currently, deferred futures contracts are offering a premium to the nearby months.  

Producers should be thoughtful through intentional and structured marketing strategies. Have a conversation with your family, management circle, and others involved in your operation on an approach that can best fit your farm. Review all potential strategies, whether insurance, futures, forward selling, options, or any combination thereof. Then implement using the right tool for the right time for the right risk tolerances. Remain consistent and all in. Trying it for a while, part time, to see what happens is a recipe for failure.  

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 over 36 years at Total Farm Marketing and following across 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 markets and marketing tools, an excellent listener, and communicates with intent and clarity to ensure clients are comfortable with their 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