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Dairy Outlook: March 2020

Dairy Outlook: March 2020
By David L. Swartz and Robert C. Goodling et.al.
 
Abrupt Reversal to Milk Price Gains
 
It's been over eleven years since we've seen the tumultuous conditions of the past few weeks. Just a few weeks ago, 2020 was projected to be a relatively decent year for dairies with relatively low feed costs and milk prices improving modestly. A lot has happened in a short time. Feed costs are still projected to be relatively calm for 2020 at this point. Being on the cusp of another growing season, there remains a lot of uncharted territory to cover for that to hold true. When it comes to milk price, the current market conditions have more than eroded the gains seen at the end of 2019 and into 2020. It would be premature to try and predict where the markets are headed over the next few days, weeks, potentially months. Figure 1 compares the retreat of Class III and Class IV futures thru February 2021 for the last week (March 13th thru March 18th). Looking at every four months of Class III, roughly $1.50 has been lost for each month, except the current month has remained relatively steady over the past week. Class IV futures retreated a bit harder in the same time period, losing nearly $2/cwt from March 13th to March 17th. There was a bit of an upward trend in both markets, but there are numerous factors that have yet to play out during this time of uncertainty, including:
  • School closures are decreasing fluid milk demand
  • Consumers adjust their consumption patterns by staying home
  • Potential labor shortages along the supply chain due to worker sickness
  • Volatility of all commodity prices
  • Uncertainty in dairy trade
  • Strengthening value of the U.S. dollar
  • Potential reduction in consumer spending on food due to loss of income
All these pieces of the puzzles have been scattered about and time will tell how they come together to give us a picture to 2020.
 
Graph 1: Class III and Class IV Price Futures from March 13 thru March 18, 2020
 
 
(CME Group, 2020).
 
It is important to note the future projections for milk income, income over feed cost, and milk margins are based on historical data. These projections are probably over-estimates of what could likely happen if there is more price volatility in the future. Milk prices may be hard to control at the producer level, but this quick change further demonstrates the need for producers to understand their breakeven costs and have strategies in place to survive the potential financial roadblocks ahead.
 
Income Over Feed Cost, Margin, and All Milk Price Trends
 
Table 1: 12 month Pennsylvania and U.S. All Milk Income, Feed Cost, Income over Feed Cost ($/milk cow/day)
 
 
¹Based on corn, alfalfa hay, and soybean meal equivalents to produce 75 lbs. of milk (Bailey & Ishler, 2007)
²The 3 year average actual IOFC breakeven in Pennsylvania from 2015-2017 was $9.00 ± $1.67 ($/milk cow/day) (Beck, Ishler, Goodling, 2018).
 
Table 2: 12 month Pennsylvania and U.S. All Milk Price, Feed Cost, Milk Margin ($/cwt for lactating cows)
 
 
¹Based on corn, alfalfa hay, and soybean meal equivalents to produce 75 lbs. of milk (Bailey & Ishler, 2007)
²The 3 year average actual Milk Margin breakeven in Pennsylvania from 2015-2017 was $12.33 ± $2.29 ($/cwt) (Beck, Ishler, Goodling, 2018).
 
Figure 2: Twelve month Pennsylvania Milk Income and Income Over Feed Cost ($/milk cow/day)
 
 
²The 3 year average actual IOFC breakeven in Pennsylvania from 2015-2017 was $9.00 ± $1.67 ($/milk cow/day) (Beck, Ishler, Goodling, 2018).
 
Figure 2: Twenty-four month Actual and Predicted* Class III, Class IV, and Pennsylvania All Milk Price ($/cwt)
 
 
*Predicted values based on Class III and Class IV futures regression (Gould, 2019).
 
Table 3: Twenty-four month Actual and Predicted* Class III, Class IV, and Pennsylvania All Milk Price ($/cwt)
 
MonthClass III PriceClass IV PricePA All Milk Price
Feb-19$13.89$15.86$17.90
Mar-19$15.04$15.71$18.50
Apr-19$15.96$15.72$18.30
May-19$16.38$16.29$18.60
Jun-19$16.27$16.83$18.80
Jul-19$17.55$16.90$19.10
Aug-19$17.60$16.74$19.40
Sep-19$18.31$16.35$19.60
Oct-19$18.72$16.39$20.10
Nov-19$20.45$16.60$21.00
Dec-19$19.37$16.70$20.90
Jan-20$17.05$16.65$20.70
Feb-20$17.00$16.20$20.04
Mar-20$16.33$15.05$19.16
Apr-20$15.89$14.31$17.90
May-20$15.55$14.19$17.67
Jun-20$15.72$14.44$17.89
Jul-20$16.08$14.72$18.25
Aug-20$16.29$15.03$18.52
Sep-20$16.46$15.24$18.71
Oct-20$16.54$15.46$19.63
Nov-20$16.54$15.60$19.70
Dec-20$16.37$15.72$19.66
Jan-21$16.23$15.91$19.50
Feb-21$16.25$16.12$19.60
*Italicized predicted values based on Class III and Class IV futures regression (Beck, Ishler, and Goodling 2018; Gould, 2019).
 
To look at feed costs and estimated income over feed costs at varying production levels by zip code, check out the Penn State Extension Dairy Team's DairyCents  or DairyCents Pro  apps today.
 
Data sources for price data
  • All Milk Price: Pennsylvania and U.S. All Milk Price (USDA National Ag Statistics Service, 2020)
  • Current Class III and Class IV Price (USDA Ag Marketing Services, 2020)
  • Predicted Class III, Class IV Price (Gould, 2020)
  • Alfalfa Hay: Pennsylvania and U.S. monthly Alfalfa Hay Price (USDA National Ag Statistics Service, 2020)
  • Corn Grain: Pennsylvania and U.S. monthly Corn Grain Price (USDA National Ag Statistics Service, 2020)
  • Soybean Meal: Feed Price List (Ishler, 2020) and average of Decatur, Illinois Rail and Truck Soybean Meal, High Protein prices, National Feedstuffs (USDA Ag Marketing Services, 2020)
Source : psu.edu