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Dairy Margin Summary - October

Dairy margins deteriorated slightly in the last half of October, although forward profitability remains relatively high from a historical perspective, according to the latest Margin Watch from Commodity & Ingredient Hedging, LLC.
Spot milk prices are very high, with the October Class III price announced at $21.02/cwt., up $2.02 from September and $2.99 higher than last year. Deferred futures are trading at a discount, suggesting that cheese prices will moderate over the near-term – although this is far from certain.
September milk production was reported at 14.67 billion lbs., down 4.4% from August and 0.5% lower than 2011. Milk per cow during September was pegged at 56.9 lbs. per head/day which was down 4.1% month over month, compared to a seasonal decline of 0.7%. Total milk cows also declined 27,000 head from August as herd liquidation continues.
Countering this, however, were monthly Cold Storage data that reflected cheese inventories only down 0.8% during September, when seasonally they normally decline 3.6% from August. Butter inventories similarly showed a smaller-than-normal seasonal decline, decreasing 2.8% on the month compared to an average drop of 14% from August.
Feed costs remain elevated and alfalfa hay prices in particular are expected to stay quite high. Soybean meal has begun moving higher due to concerns over excessive precipitation in Brazil and especially Argentina, where a year’s worth of rainfall has occurred since early September.
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