Dairy Outlook: August 2019

Dairy Outlook: August 2019
Aug 20, 2019

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IOFC remains flat, improvements on the horizon
 
The latest data to estimate IOFC were June 2019, and it shows continued slow improvement in milk price and milk income, but uncertainties in the feed markets (particularly corn) are holding IOFC steady. Milk prices should continue to strengthen. The average Class III futures for the second half of 2019 rose $1.22/cwt to $17.35/cwt since the prices used in the June outlook. Class IV futures in the same time frame rose $0.41/cwt. That current average is 19% higher than the established Class III price for 2018, and along with DMC payments, should help 2019 reduce the immediate cash flow stress on Pennsylvania dairy operations.
 
Feed costs remain a stress to that recovery and reinvestment. Planting and growing conditions this year have been challenging and may impact the quantity and quality of home raised and purchased feeds. Despite the weather issues, recent estimates by USDA for improved 2019 corn and soybean yields provided some relief to those market prices. These yield adjustments impact on near term estimated feed costs remain to be seen.
 
Domestic supply continues to outpace utilization
 
The first half of 2019 has realized a slowing of domestic milk supplied to markets as well as a slight increase in domestic disappearance (Figure 1). Estimated on a daily basis, Figure 1 shows how 2019 is comparing to the annual daily estimates for the last twenty-four years. June's daily milk marketed (total production less farm use) on a milk-fat basis was 605 million lbs., down from 612 million in May. Daily domestic commercial disappearance for June was 584 million lbs., up 2 million from May. While domestic supply and demands across all milk products have increased, milk marketed has outpaced commercial disappearance since 2010. If the 2019 trend continues, it's annual average could be just the third production decreased from the previous year in the past twenty four years. Fluctuating commercial imports and exports as well as growing commercial stocks have the potential to subdue milk price despite supply demand corrections.
 
Figure 1: Twenty-four Years of Domestic Marketing and Disappearance of All Milk Products on Milk-Fat Basis (million lbs/day)
 
 
Estimated daily production based on annual (1995-2018) and monthly (2019) estimates (USDA, 2019).
 
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: 12 month PA Milk Income and Income over Feed Cost
 
 
The 3 year average actual IOFC breakeven in Pennsylvania from 2015-2017 was $9.00 ± $1.67 ($/milk cow/day) (Beck, Ishler, Goodling, 2018).
 
Figure 3: 24 month Actual and Predicted* Class III, Class IV, and Pennsylvania Average Mailbox Price ($/cwt)
 
 
*Predicted values based on Class III and Class IV futures regression (CME, 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
Jul-18$14.10$14.14$16.20
Aug-18$14.95$14.63$16.40
Sep-18$16.09$14.81$17.10
Oct-18$15.53$15.01$18.10
Nov-18$14.44$15.06$18.00
Dec-18$13.78$15.09$17.60
Jan-19$13.96$15.48$17.70
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$20.05
Aug-19$17.44$16.74$19.76
Sep-19$17.82$17.03$20.05
Oct-19$17.77$17.21$20.99
Nov-19$17.59$17.24$20.97
Dec-19$17.18$17.16$20.84
Jan-20$16.81$16.99$20.42
Feb-20$16.66$17.05$20.44
Mar-20$16.65$17.19$20.52
Apr-20$16.77$17.25$19.90
May-20$16.81$17.39$20.01
Jun-20$16.90$17.51$20.12
Jul-20$17.03$17.69$20.37

*Italicized predicted values based on Class III and Class IV futures regression (Beck, Ishler, and Goodling 2018; CME, 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, 2019)
  • Current Class III and Class IV Price (USDA Ag Marketing Services, 2019)
  • Predicted Class III, Class IV Price (CME, 2019)
  • Alfalfa Hay: Pennsylvania and U.S. monthly Alfalfa Hay Price (USDA National Ag Statistics Service, 2019)
  • Corn Grain: Pennsylvania and U.S. monthly Corn Grain Price (USDA National Ag Statistics Service, 2019)
  • Soybean Meal: Feed Price List (Ishler, 2019) and average of Decatur, Illinois Rail and Truck Soybean Meal, High Protein prices, National Feedstuffs (USDA Ag Marketing Services, 2019)