Dairy margin outlook mixed
Factors affecting dairy income margins were mixed since the middle of November, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging, LLC. Margins improved slightly for the first quarter (Q1) of 2013, but were generally weaker in Q4 of 2012 and Q2-3 in 2013.
Milk prices held relatively steady over the past couple weeks, while feed costs increased, putting pressure on forward profitability. Renewed concerns have developed over South American crop prospects, with excessive rainfall in Argentina limiting corn planting progress, and lack of rainfall in southern Brazil is causing concern over soy crops there. Demand remains quite strong for soybean meal, and a recent surge in soybean oil exports will likely increase the domestic crush and demand for soybeans in the process.
While corn demand remains lackluster, old-crop prices appear well supported in the low-$7.00/bushel range. Concern is also building for the hay price outlook for next year, because one-third of all hay acres are located in the Plains, which remains mired in drought. The winter wheat crop is entering dormancy, with the lowest crop condition rating on record.
Class III milk futures prices have held relatively steady over the past few weeks, although product prices have come under pressure recently.
Recent poor margins have increased dairy herd liquidation, especially in western states: 285,000 dairy cows were slaughtered during October, the highest of any month in the past decade.
Feed costs up, but Pennsylvania IOFC improves for third straight month
Pennsylvania’s November 2012 milk income over feed costs (IOFC) rose 1.9%, making it 62% higher than August levels, according to Penn State dairy economist Jim Dunn.
The November Pennsylvania all-milk price was up $1.00/cwt., to $23.80/cwt., the highest since August 2011. Higher hay prices (up 22%) offset falling corn and soybean prices, pushing feed costs up. At $6.29, average daily feed costs (at 65 lbs. of milk/cow/day) were up 40¢ from the previous month. IOFC for a cow producing 65 lbs. of milk per day was $9.18, up 17¢.
Measured another way, feed costs per hundredweight of milk produced averaged $9.68/cwt., resulting in a milk income margin over feed costs of $14.12/cwt., up 26¢ from October and the highest since September 2011.
Dunn forecasts the 2012 Pennsylvania all-milk price will average $19.90/cwt., increasing to $21.42/cwt. for the first half of 2013. Feed costs are still very high, but down considerably from their August peaks. However, given the apparent peak in milk prices in November, he does not expect Spring 2013 milk production to be as robust as in early 2012.
To read Dunn’s December Dairy Outlook, visit http://www.personal.psu.edu/faculty/j/w/jwd6/DairyOutlookdec12.pdf.