Cow grazing with crossed out rainbow on horizon SIYAMA9/iStock/Thinkstock
NO DAIRY RAINBOW AHEAD: While a pot of gold at the end of a rainbow may be a dairy farmer’s dream, an overcast outlook remains on the horizon.

Dairy outlook from Penn State: Not much price improvement ahead

Penn State University’s rejuvenated Dairy Outlook for October shows little potential for milk price increases, but maybe near-term margin gains.

Here’s a peek at Penn State University’s rejuvenated Dairy Outlook for October. First, the good news: Milk prices improved slightly in recent months, while feed prices have shifted lower. So milk margins are at the highest level in over a year. That’ll give dairy producers a little more milk-margin breathing room, according to Rob Goodling, Extension coordinator for the outlook.

Northeast producers that have seen very thin margins over the past two years. This year’s corn crop on a significant number of Pennsylvania dairy farms has been yielding excellent silage tonnage and grain, he adds.

The year-over-year milk production increases in the Northeast’s Federal Order 1 slowed by midsummer, notes Goodling. That provided a small bit of relief for marketers and manufacturers in the Northeast. But in Pennsylvania, with abundant crops and cooler autumn weather, the milk spigot will reopen, he adds.

Future outlook challenging
Now for the not-so-good news. Predicted Class II and IV and Pennsylvania average mailbox milk prices are expected to decline at least $1.50 per hundredweight by next summer. “When you remove that $1.50 from this month’s milk margin, the predicted margin [if crop prices stay exactly the same] is nearly as low as we have experienced over the past year,” says Goodling.

The predicted drop in milk prices provides enough of a challenge for profitability without any consideration of price movement on feed. However, soybean meal futures are trending upward even though U.S. farmers are harvesting a fourth consecutive record national soybean crop. And, USDA has announced that on-farm stocks of soybeans are much higher than last fall.

Normally, these factors would be very bearish on price. Yet the potential for export for plant protein, domestic crush demand plus record numbers of livestock and poultry continue to support the soybean meal price. Based on the predicted hit to margins from lower milk prices, it’ll be critical for dairy producers to keep downward pressure on feed costs and not allow market variations, especially in protein, to further damage the significantly stressed margins predicted by the late spring and summer of 2018.

Organic markets trembling
All involved in organic milk markets have been closely watching USDA’s response to an investigation of Aurora Dairy. This dairy has over 20,000 cows milking on a number of farms in Colorado and Texas. It’s the largest producer of organic milk in the country.

USDA investigated Aurora on the basis of complaints that the dairy violated national organic standards. USDA concluded its investigation and found no violations.

Over the past couple of years, organic milk markets have suffered from producing more milk than is needed by the market. In Pennsylvania, a few dairy farms are in the three-year transition to organic. But cooperatives and companies handling organic milk aren’t starting any new herds. Currently, there’s simply no need for additional organic milk.

If organic milk production standards can now be met on large-scale production operations, as Aurora has now proven to the satisfaction of USDA, then organic milk will continue to be plentiful. Prices will trend lower, and organic milk will become more of a commodity than a distinctive product.

Download the full Penn State Extension Dairy Outlook with price projection tables and graphs. Beginning with this month’s report, you can also save and print out a PDF version.

Source: Penn State University

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