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U.S. Milk Production Plummets to Historic Lows

Find out why U.S. milk production is at historic lows and what you, as a dairy farmer, need to know to get through this crisis. How will this impact your farm’s future?

Summary: U.S. milk production has been declining for 13 straight months, with June and July seeing historic drops of 1.7% and 0.4%, respectively. As the dairy herd shrinks and ages, spot milk prices have soared due to strong demand from bottlers and processors. Global factors, including active Chinese participation in the Global Dairy Trade auctions, have further complicated market dynamics by pushing milk powder prices higher. U.S. cheese inventories are at their lowest since 2020, and overall dairy product prices remain volatile. Dairy farmers face significant pressures but have opportunities to mitigate these challenges through strategic herd management, quality feed, and market awareness.

  • U.S. milk production has faced a decline for over a year, creating historic drops in mid-2023.
  • The shrinking and aging dairy herd has resulted in higher spot milk prices.
  • Strong demand from bottlers and processors is driving up milk prices.
  • Increased participation from Chinese buyers in Global Dairy Trade auctions has pushed milk powder prices higher.
  • U.S. cheese inventories are at their lowest levels since 2020, reflecting volatility in dairy product prices.
  • Dairy farmers can combat these pressures with strategic herd management, quality feed, and staying informed about market trends.
milk output, United States, record reduction, production, decline, USDA, dairy herd, growth, managing herds, cull rates, older cows, milk production, stall, rising demand, valuable commodity, spot milk prices, bottlers, processors, milk powder costs, CME spot nonfat dry milk, whole milk powder, skim milk powder, global demand, Chinese purchasers, Global Dairy Trade auctions, milk powder stocks

Milk output in the United States is on track for a record reduction, with production falling for 13 months—the most extended period in modern history. The USDA reported a 1.7% decline in milk output in June, followed by a 0.4% fall in July. What does this imply for your farm and the future of dairying in America?

Month2023 Milk Output (million pounds)2024 Milk Output (million pounds)Year-over-Year Change (%)
June18,57518,260-1.7%
July18,43018,360-0.4%
August18,80018,700 (est.)-0.5% (est.)

America’s Dairy Slump: Facing the Hard Truths of Historic Milk Production Declines

The present status of U.S. milk production is distinguished by unprecedented decreases, with a 1.7% loss in June and a 0.4% dip in July compared to last year. These numbers highlight the most severe two-year slump in decades. The USDA has updated its projections, indicating a lower dairy herd of 9.325 million cows in July, down 43,000 from July 2023. This diminishing and aged herd cannot support considerable growth despite seasonal mild temperatures.

Feeling the Squeeze: How Declining Milk Production Hits Dairy Farmers Hard 

MonthNumber of Milking Cows (2024)Number of Milking Cows (2023)Year-over-Year Change
January9,368,0009,392,000-24,000
February9,355,0009,385,000-30,000
March9,325,0009,371,000-46,000
April9,312,0009,362,000-50,000
May9,300,0009,354,000-54,000
June9,290,0009,338,000-48,000
July9,325,0009,368,000-43,000
August 1-239,332,0009,376,000-44,000

So, how does the drop in milk output affect dairy producers where it counts the most? Let’s dig right in.

First and foremost, sustaining herd numbers becomes an uphill task. Dairy producers find it more challenging to manage their herds at ideal size. The USDA reported a 43,000 head reduction in milk cows from July 2023 to July 2024. Maintaining herd numbers has become a difficult challenge. Dairy producers need help managing their herds at appropriate levels. The USDA announced that the number of milk cows had decreased by 43,000. That’s a considerable drop, making it challenging to build up output.

Furthermore, higher cull rates exacerbate the situation. Farmers have little option but to cull their older, less productive cows. But here’s the kicker: the surviving cows aren’t growing any younger. According to the USDA, the dairy herd is aging, and older cows produce less milk. What are the consequences? A less efficient herd is failing to satisfy demand.

The actual data provide a striking picture. For the last 13 months, milk production in the United States has been lower than in the previous year. USDA figures indicated a 1.7% loss in June, which eased somewhat to a 0.4% drop in July. This protracted fall is not a fluke but a pattern with far-reaching consequences (USDA Milk Production Report, 2024).

So, what are farmers to do? Producers are working to fill every stall and reduce cull rates. However, the truth remains: a decreasing, aged herd cannot satisfy rising demand, making milk and other dairy products a valuable and costly commodity.

Have you felt the pinch yet? You are not alone. But knowledge is power, and knowing these obstacles is the first step toward overcoming them.

Spot Milk Prices Soar: Bottlers and Processors in a Tug-of-War

Month2024 Price ($/cwt)2023 Price ($/cwt)Year-over-Year Change (%)
January20.7522.10-6.1%
February21.0022.00-4.5%
March21.5021.75-1.1%
April22.2521.503.5%
May23.0021.905.0%
June22.7522.302.0%
July23.2522.503.3%
August (up to 23rd)23.5022.753.3%

Right now, the market is congested and busy. Spot milk commands a significant premium above Class III in the central area, ranging from $2.25 to $3.00 per cwt. The increase in spot milk prices is causing processors and bottlers to feel the squeeze.

On top of that, milk powder costs are rising. This week, CME spot nonfat dry milk (NDM) rose 2.75¢ to $1.2825 per pound, the most since January 2023. Whole milk powder (WMP) increased by 7.2% to its highest level since October 2022, while skim milk powder (SMP) recovered by 4%.

As schools reopen, the demand for milk in meal programs increases, and bottlers vie furiously to get supply. This ‘milk tug-of-war’ forces other processors to operate more lightly, complicating operations and raising expenses. Understanding this dynamic can help you anticipate and plan for potential disruptions in the supply chain.

Global Demand: China’s Milk Powder Purchases Spark U.S. Market Surge

The dairy market in the United States is heavily influenced by global demand. Recently, increased activity from Chinese purchasers has played a vital role. After more than a year of modest purchases, China’s participation in the August Global Dairy Trade (GDT) auctions pointed to decreased milk powder stocks in the nation. This rise in Chinese demand increased prices for whole milk powder (WMP) by 7.2% and skim milk powder (SMP) by 4%.

Such worldwide interest directly influences U.S. milk powder pricing, resulting in significant profits. For example, spot nonfat dry milk (NDM) prices increased to $1.2825 a pound, the highest level since January 2023. This considerable growth may be attributed to rising imports from China.

This increasing overseas demand improves the US dairy business as a whole. Export sales contribute considerably to overall market dynamics, mitigating the impact of decreases in local production. As Chinese whey imports increased by 13.2% in July and WMP imports behind the previous year’s amount by just 4.6%, US producers found a confident customer, helping to stabilize prices in the face of local concerns.

Butter and Cheese Frenzy: What’s Happening?

Let’s discuss the butter and cheese markets. Butter stocks fell quicker than expected in July, although there was still 7.4% more butter on hand at the end of the month than a year earlier. Prices fell, with CME spot butter down a cent to $3.13 per pound. Despite this, butter purchasers are still on edge, swapping over 100 cargoes in Chicago last week and another 54 vehicles on the spot market this week.

Cheese supplies are also under strain. Historically, cheese stockpiles in the United States grow by around 30 million pounds between the end of February and the end of July. This year, however, inventories have fallen by 50 million pounds. On July 31, the end-of-month cheese inventory was 1.4 billion pounds, the lowest since late 2020 and 5.8% lower than the previous year. CME spot Cheddar barrels closed at $2.10 per pound, a 15.5 percent loss, while blocks finished at $2.0375, a 6.25 percent decrease.

Navigating the Storm: Proactive Strategies for Dairy Farmers in Turbulent Times 

Facing this daunting scenario, dairy farmers need proactive strategies to navigate these turbulent times. Here are some actionable tips to help you weather the storm: 

Maximize Efficiency in Herd Management 

Consider implementing advanced herd management software. These tools can accurately monitor each cow’s health, productivity, and breeding cycles. As herd sizes decrease (down to 9.325 million cows in July), ensuring every cow performs optimally is vital. 

“Utilizing data-driven technologies can significantly enhance herd efficiency and milk yield,” says John Smith, dairy management expert at FarmTech Innovations. 

Invest in Quality Feed 

The nutritional value of your feed directly impacts milk production. Opt for high-quality, balanced diets catering to your herd’s needs. Grain prices have dipped (December corn closed at $3.91 per bushelNovember soybeans at $9.37), making it an excellent opportunity to stock up on feed. 

Monitor Cow Comfort 

Stress can severely affect milk production. Ensure your cows have comfortable bedding, ample space, and a stable environment. Regularly check ventilation and temperature controls, significantly as temperatures drop seasonally, boosting milk output. 

Strategize Cull Rates 

Although culling less productive cows is necessary, consider a more selective approach. Focus on maintaining a younger, more efficient herd to maximize milk production per cow. 

Optimize Milk Production 

Studies show that certain practices, like frequent milking and ensuring cows have constant access to clean water, can increase yield. Remember to periodically review your milking equipment to ensure it’s working efficiently. 

Tap into Market Opportunities 

With spot milk prices soaring (trading at $2.25 to $3.00 per cwt over Class III), it’s a prime time to renegotiate contracts or seek new buyers willing to pay a premium. Consider diversifying your products if possible – cheese and butter prices fluctuate. Still, high-protein dairy products like whey are currently in demand. 

“Farmers who adapt quickly to market shifts by diversifying their product lines often find more stable income streams,” advises Laura Anderson, market analyst at AgriMarket Insights. 

Stay Informed and Collaborative 

Keep up with industry reports and trends. Join local farmers’ groups or online forums to share insights and strategies. Sometimes, the best advice comes from fellow farmers who understand your unique challenges. 

Remember, while the current landscape seems challenging, intelligent and proactive management can help you survive and thrive. Keep experimenting with different strategies and stay abreast of market trends to make informed decisions.

The Bottom Line

Milk output in the United States is declining at a record rate, posing substantial challenges for dairy producers. The problems are significant, with milk supply behind prior-year volumes by more than a year, fewer cows in the herd, and higher spot milk prices. Global demand movements, notably from China, and shifting dairy product prices add an extra complication. Maximizing herd efficiency, investing in quality feed, and monitoring cow comfort are critical for navigating these tumultuous times. Strategic market actions are also necessary. Staying educated and collaborative within the industry might offer the competitive advantage required.

Given these unprecedented obstacles, how will you adjust to guarantee the viability of your dairy farm?

Learn more: 

Big Milk Checks and Low Feed Costs: A Profitable Summer for Dairy Producers

Learn how dairy producers are earning big milk checks and benefiting from low feed costs this summer. Will this profitable trend last despite challenges like heifer shortages?

Dairy farmers are reaping substantial milk checks while benefitting from decreased feed prices. This unusual position provides a tremendous opportunity for everyone in the dairy business, including farmers and analysts. The present very favorable economic climate enables dairy producers to expand their businesses. A boom like this typically results in more milk supply and cheaper pricing. Still, problems like heifer scarcity and external factors limit expansion. Understanding how to handle these moments may help dairy producers achieve immediate and long-term success. The dairy sector environment is reshaped by fundamental market factors, such as decreasing feed prices and increased meat income.

Unprecedented Financial Prosperity: Dairy Producers Enjoy Robust Revenue Streams and Low Feed Costs

MonthCorn ($/bushel)Soybeans ($/bushel)Soybean Meal ($/ton)
April4.2011.00325.00
May4.1010.75320.00
June4.0010.50310.00
July3.9010.35307.40

The present financial picture for dairy farmers is powerful. Substantial milk checks and increased money from cattle sales have greatly improved the bottom line. Low feed costs boost financial wealth. Beneficial weather in the maize Belt has caused the USDA to rank 68% of maize and soybeans in outstanding condition, providing dairy farmers an ideal opportunity to lock in feed prices at multi-year lows. This attractive mix of high revenues and minimal inputs opens up untapped opportunities for financial stability and future challenge preparedness.

Converging Challenges: Factors Constraining Dairy Production Growth

The present market dynamics in the dairy business are heavily driven by variables that limit milk production growth. The heifer scarcity is a significant barrier, restricting herd growth and driving prices to $3,300 per head. Higher interest rates hamper dairy investment by increasing financing costs. Hot summer temperatures diminish milk output and impair herd health, necessitating extra attention. Furthermore, avian flu disrupts feed supply systems. Despite reduced feed prices, interruptions due to health problems in associated industries increase unpredictability. These issues, taken together, create a harsh climate for dairy farmers. While they provide good profits, their potential to increase milk output is restricted, limiting oversupply and stabilizing milk prices in the near run.

Soaring Heifer Prices Reflect Unprecedented Demand Amid a Heifer Shortage 

DateLocationAverage Price per HeiferPrice RangeRemarks
Last WeekTurlock Livestock Auction Yard$3,075$2,850 – $3,300Record price range indicating high demand
This WeekPipestone, Minnesota$3,150Top 25 AverageSustained high prices despite limited supply

Heifer prices are skyrocketing, indicating a significant demand for dairy farmers to fill their barns. At the Turlock Livestock Auction Yard’s monthly video auction, Holstein springers recently sold for $2,850 to $3,300 each. Similarly, the top 25 springers averaged $3,150 each in the Pipestone, Minnesota auction. These rates reflect the necessity of securing heifers in the face of scarcity.

Concurrently, cull rates have dropped to record lows. In the week ending July 6, dairy cow slaughter fell to 40,189 head, the lowest level since December 2009 and 20.6% lower than the same week in 2023. This reduction suggests that farmers hold on to cows they could have slaughtered because of high heifer prices and replacement issues.

Consequently, dairy cow numbers are expected to grow, possibly boosting milk production. However, integrating lower-producing cows may decrease the average output per cow, making it challenging to optimize milk quality and efficiency.

Uneven Demand and Supply Dynamics Threaten Dairy Market Stability

CommodityAverage Price (July 2024)Quantity Traded4-Week Trend
Whey$0.50552Up
Cheese Blocks$1.863023Stable
Cheese Barrels$1.898022Stable
Butter$3.114069Up
Non-Fat Dry Milk$1.179510Down

The dairy market’s trajectory is finely balanced between demand and supply dynamics. Despite the present affluence, low demand for dairy products poses a considerable concern. Cheese consumption remains high due to local promotions and increased exports based on previous low pricing. However, it is still being determined if this tendency will continue. While spring’s record exports lowered cheese stocks, this activity is projected to slow, possibly raising inventory levels and increasing prices if fresh demand does not materialize.

Future cheese sales domestically are uncertain. A slowdown may quickly lower prices. The CME spot market shows volatility, with spot Cheddar barrels increasing by 6.25˼ to $1.9125 per pound and Cheddar blocks decreasing by 2.5ͼ to $1.865. These differences highlight cheese demand’s unpredictable nature.

Cheese’s domestic appeal helps to balance the market against shortages. Still, a reduction in demand or underperforming exports might upset this equilibrium. Industry worries are reflected in uneven spot market movements. Elevated pricing and deliberate inventory sell-offs are a balancing act against declining exports and unreliable domestic demand. The dairy industry’s survival depends on managing these uncertainties and reducing risks.

Converging Pressures: Divergent Trends in Whey and Milk Powder Markets Define Dairy Sector’s Future 

The whey industry is increasing due to increased domestic demand, especially for high-protein varieties. This demand has limited dry whey production, raising prices. CME spot whey powder gained by 0.75̼ this week, hitting 51.75̼, its highest level since February. The USDA’s Dairy Market News indicates that supplies are limited, with producers selling out monthly.

In contrast, the milk powder market in the United States has recurrent production deficits and poor export prospects. At the most recent Global Dairy Trade (GDT) auction, prices of skim milk powder (SMP) and whole milk powder fell by 1.1% and 1.6%, respectively. CME spot nonfat dry milk (NDM) initially followed this pattern. Still, it rallied late in the week, closing at $1.1975, up 1.75 percent from the previous Friday.

The effect of these changes is noticeable. Strong domestic demand has reduced whey supply and raised costs. Meanwhile, the milk powder market faces restricted supply and sluggish exports, limiting prospective price increases. These opposing developments show the dairy market’s varied pathways.

Heatwave-Induced Strain: Analyzing the Ripple Effects on Butterfat Levels and Cream Pricing Dynamics

The warmer weather has significantly impacted milk output and butterfat levels. Cream prices rose in the East and West but stayed stable in the Central Region. Butter output has decreased due to the bad weather, particularly in the West. Despite this, butter prices dipped this week due to heavy trade in Chicago. The market’s forecast of stable pricing through October promotes fast sales to prevent storage expenses. The CME spot market saw an astonishing 69 cargoes change hands, the most in over a year. Despite the high costs, buyers remain active, fearing future shortages.

Whey and Cheddar Surge Lifts Class III Futures: Strong Market Dynamics Promise Financial Stability 

The healthy whey and cheddar barrel markets have bolstered 2024 Class III futures. The August contract increased by 28 cents to $19.97 per cwt, while the September and October contracts gained roughly 50 cents, finishing in the mid-$20s. Despite Class IV futures holding high at about $21.50, most contracts lost money. This pricing should cover expenditures and allow for debt repayment or future planning.

Weather-Induced Prosperity: Dairy Producers Benefit from Ideal Crop Conditions Driving Down Feed Costs

The present level of feed prices provides a significant relief for dairy farmers, owing to the healthy condition of the maize and soybean harvests. Favorable weather in the Corn Belt has resulted in extraordinary crop growth, with the USDA rating 68% of corn and soybeans as good to excellent. Cooler-than-normal temperatures have helped maize during its crucial pollination season, resulting in record-high yields. Feed prices have dropped further, with September corn futures reaching $3 and the December contract ending at $4.055 per bushel, a 9 percent decrease from last Friday.

Similarly, increased confidence in soybean supply has pulled November soybean prices down by 30 to $10.355 per bushel, while December soybean meal futures have declined by $6.70 to $307.40 per ton. These patterns enable dairy farmers to lock in feed prices at multi-year lows, allowing them to profit on historically strong dairy margins.

Crafting a Comprehensive Risk Management Strategy for Dairy Producers

Dairy farmers need effective risk management to navigate fluctuating market situations. Locking down feed prices at current lows is an appealing approach. Producers that secure feed contracts today may stabilize input costs, reducing future price concerns and assuring more predictable financial planning. This foresight ensures profitability even if feed markets rise suddenly.

Furthermore, the Dairy Income Protection (DRP) scheme provides a strong safety net, protecting against quarterly milk sales income declines based on pricing and production levels. This protects farmers from market changes and ensures revenue stability. Futures and options also help to control price risk. Hedging future milk sales or feed purchases allows producers to lock in advantageous pricing while reducing market vulnerability. This guarantees that manufacturers may maintain lucrative margins by taking advantage of rising pricing.

Locking low feed costs, participating in the DRP program, and leveraging futures and options contribute to a holistic risk management plan. It enables dairy farmers to control expenses, protect income, and take advantage of favorable market circumstances, resulting in a more predictable and profitable financial future.

The Bottom Line

Dairy farmers face an environment characterized by high milk check income and low feeding expenses. Celebrating their financial success, they also confront a unique set of obstacles and possibilities. High heifer prices, low slaughter rates, and robust demand all point to continued profitability. However, low demand, export uncertainty, and weather changes need a deliberate strategy. Dairy farmers must lock in low feed prices, use risk management techniques such as Dairy Revenue Protection (DRP), and keep alert to market trends. To achieve long-term success, be educated and nimble. Now is the moment to use the economic recovery to increase your farm’s resilience and sustainability.

Key Takeaways:

  • Producers are experiencing significant financial gains, with high milk checks and additional revenue from beef sales.
  • Feed costs are at multi-year lows, providing an opportunity for dairy producers to secure favorable financial terms.
  • Efforts to increase milk production are hampered by a shortage of heifers, along with elevated interest rates, high summer temperatures, and the bird flu.
  • Heifer prices have surged, reflecting heightened demand against a backdrop of scarce supply.
  • Despite reduced cull rates, milk yields may decline as producers hold onto lower-production cows due to heifer shortages.
  • Cheese and whey markets show variable trends, with strong domestic demand driving prices upward, while export volumes appear poised to decrease.
  • The combination of high temperatures and decreased butterfat levels has led to fluctuating butter and cream prices.
  • Class III futures are buoyed by strong whey and Cheddar prices, promising financial stability for dairy producers.
  • Ideal weather conditions in the Corn Belt are contributing to low feed costs, enhancing economic prospects for dairy producers.

Summary:

Dairy farmers are experiencing financial prosperity due to increased milk checks and decreased feed prices, allowing them to expand their businesses and increase milk supply and cheaper pricing. However, problems like heifer scarcity and external factors limit expansion, such as higher interest rates, hot summer temperatures, and avian flu. Heifer scarcity restricts herd growth, driving prices to $3,300 per head. Cull rates have dropped to record lows, and dairy cow slaughter has fallen to 40,189 head, the lowest level since December 2009. Uneven demand and supply dynamics threaten dairy market stability. The dairy industry faces challenges such as increasing domestic demand for high-protein varieties, limited dry whey production, and fluctuating market dynamics. Weather-induced prosperity has provided ideal crop conditions, driving down feed costs. Effective risk management strategies are needed to navigate fluctuating market situations, such as locking down feed prices at current lows and using futures and options to control price risk.

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