The good news, according to Penn State ag economist Jim Dunn, is that milk prices are headed in the right direction. The not-so-good news in his August Dairy Outlook is that prices aren’t headed higher faster to help compensate for drought-damaged feedstuff reductions.

July Class III milk prices were $2.02 per cwt higher than in June, while Class IV prices were up $1.07. “The market is responding to a variety of events, including the extreme heat in the Southwest, drought in parts of the Northeast and lower margins worldwide, which are leading to decreased milk production,” he summarizes.

SHE HAS REASON ‘PHWWWT’: Improving milk prices may ensure she has a job beyond this lactation.

Class III milk prices are expected to run higher through the remainder of 2016, then hold about the same for the first half of 2017. Dunn estimates that Pennsylvania’s all-milk price for the rest of 2016 will average $2.80 per cwt more than for January-June, but still 62 cents below the 2015 average.

Northeast drought impact
In much of Pennsylvania and upstate New York, the latest drought monitor shows drought is becoming more serious. The corn crop has stalled, and the hay crop will be considerably smaller in some areas. This will hurt net dairy income as affected farmers have to buy feed to replace crops they’ve spent money to grow.

The U.S. corn crop will be a record, or nearly so, and domestic and export demand won’t eliminate the drag of large inventories being carried into the 2017 crop year. The soybean situation is fairly similar – favorable weather in the major U.S. growing areas.

Penn State’s measure of income over feed costs rose by 28.8% in July from its June value. That was due to higher milk prices combined with somewhat lower feed prices. This is the kind of scenario where extra stockpiled feedstuffs pays off.

July’s income over feed cost was the highest since last November. Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day.

Like income over feed cost, the milk margin measure shows that Pennsylvania’s July milk margin was 28.8% higher than in June.

Market troubles ahead
June’s U.S. milk production report showed June milk production up 1.5% from a year earlier. While not a large increase, it’s problematic in the current dairy environment, warns Dunn.

The export market is tight, given the strong dollar, he explains. Cow numbers also increased by

0.05% over last year. That spells more milk, which will restrict higher prices.

For more specifics, catch Dunn’s August Dairy Outlook.