Watching commodity markets right now feels a little like riding a roller coaster at Hershey Park that goes backwards. Over the past decade, we have gotten used to seeing strong commodity prices weighing down dairy margins while dairy prices remained relatively lackluster. There were a few tracks upwards for dairy, but they were typically countered by even higher prices in the grain markets. This year is different with the last half of 2024 forecasting above average dairy and beef prices with below average commodity grain prices. It feels a little upside down and backwards compared to what we have come to expect. But nonetheless, like a kid riding that backwards roller coaster, it has created quite a thrill for dairy producers enjoying the stronger margins right now.
On the dairy side, Class III and IV milk prices have rebounded dramatically from where they were earlier this year. After falling to $15.37 per hundredweight in January, Class III climbed to $19.79 per hundredweight in July, up $4.42 in the past six months. Looking ahead into the fall months, Class III milk futures prices average above $21.50 for the remainder of 2024, as of August 24, with the market seeing even more momentum in the past couple of weeks. Class IV prices have been more stable in 2024, starting out at $19.39 per cwt. in January and steadily rising to $21.31 in July, a difference of just under $2 per cwt. For the remainder of the year, Class IV futures prices average just over $22 per cwt., as of August 24. The market does continue to see a lot of volatility, though, with dramatic swings in prices either up or down occurring throughout the summer months.
Smaller Inventories Helping Margins
Beef prices have also aided in dairy margins. July cull cow prices averaged $1.30 – $1.40 per pound, up from a range of $0.75 – $1.06 a year ago. In most cases, cull cow checks are nearly twice as high as they were a year ago. Bull calves are also providing extra income for the dairy, with a Holstein dairy calf bringing as much as $600 or more at auction. Angus crossed calves are at an even higher premium, bringing as much as $1,000 for a day-old calf. With the nation’s beef herd attempting to rebuild after dropping to its lowest inventory since 1951 earlier this year, all black calves are in demand right now.
For those dairies who have extra heifers to sell, those prices are also higher than a year ago. That’s because the nation’s heifer crop is also at all-time lows. The lower heifer inventories are also helping to slow growth in the nation’s dairy herd, despite the stronger milk margins we are seeing right now. In the July Milk Production Report, US dairy cattle inventories were at 9.325 million head in July, up 5,000 head from June but the second lowest amount since September 2019.
Reversing Trends in Farm Economy
Unfortunately for those who cash crop grain, that market is looking significantly different than the dairy complex right now. According to USDA’s Ag Prices report, corn prices fell to $4.48 per bushel at the farm level in June, down more than $2 from year-earlier levels. Soybean meal prices were at $384.10 per ton in June, down $19.36 from a year ago. However, since the USDA Ag Prices report was published, the grain market has seen more erosion. On the CME Board, corn futures for the remainder of the year are hovering around $4.00 per bushel, while September and December soybean meal futures have fallen to between $329 and $338 per ton.
The grain complex continues to be challenged by larger supplies and above-average production forecasts. The USDA’s World Agriculture Supply and Demand Estimates report projects corn production to come in at 183.1 bushels per acre with 90.8 million acres planted across the US. That’s down slightly from 2023, but higher beginning stocks continue to weigh heavily on the market. The most recent report projects the farm-level corn price to average $4.20 per bushel for the year. On the soybean side of the equation, soybean average yields are expected to be about 53.2 bushels per acre, with about 86.3 million acres planted across the US.
There have been many articles highlighting the eroding grain prices and the impact it could have on the total farm economy in the coming year. Several ag companies have already downsized their workforce anticipating continued declining sales. USDA’s Economic Research Services is currently projecting the farm economy to decline again in 2024, falling more than 40 percent from its peak in 2022. The agency is forecasting a 43 million drop in total net farm income from 2023 to 2024, which is a 25 percent decline year over year.
Anticipating the Drop
The last time the dairy community experienced higher milk prices, those prices were offset by high commodity prices. This is uncharted territory. Like stepping onto that roller coaster for the first time, it may feel a little uneasy for those of us who are wanting to anticipate the next bend. Unfortunately, how the situation will play out is anyone’s guess. We don’t know how weather woes going into the fall will impact harvest projections or how the Presidential Election will affect the economy. All we can do is make sure we are prepared for whatever scenario plays out.
That is where programs like the Dairy Margin Coverage and Dairy Revenue Protection Program come into play. If you are fortunate enough to have cash reserves to ride out the highs and lows, you don’t need to use risk management. But if, like most dairy farmers, your cash flow is always tight even in the best of years, having a risk management plan can protect you from when the coaster suddenly falls out from under you. While DMC is not likely to pay off this year, having it as a safety net has proven to be beneficial in the long term. The Dairy Revenue Protection is more market based, and in the current dynamics, may offer more opportunities than what DMC can. To learn more about Dairy Revenue Protection, contact your local crop insurance agent or call the Center at 717-346-0849.
Editor’s Note: This column is written by Jayne Sebright, executive director for the Center for Dairy Excellence.