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Serving: WI

Ag economist warns of rising dairy feed costs

Grigorenko/Getty Images Dairy cows line up to eat
TOO MUCH MILK: The U.S. is not the only country culling dairy cows. Ag economist Dan Basse said the European Union’s monthly milk production is the lowest since 2017, and Oceana’s milk production is down the most since 2016.
Milk price won’t reach $20 until more cows are culled.

Corn prices are expected to climb to $6 per bushel and soybean meal as high as $470 per metric ton this year, according to agriculture economist Dan Basse, president of AgResource Co. of Chicago.

Rising feed margin pressure will persist throughout 2021, Basse told viewers on a Dairy Signal webcast on April 1 sponsored by Professional Dairy Producers. He advised dairy producers to think ahead on feed and forage needs.

“Stay alert,” he said. “Managing that risk will be key to your dairy operation.”

Basse says U.S. dairy cow numbers have reached their high for 2021.

“We are now going to see cow numbers decline through the end of the year.”

When U.S. planting intentions were announced March 31 by the USDA, Basse said milk futures rose with the sharp rally in grain prices on the Chicago Board of Trade.

“Processors and importers sense U.S. milk production will stabilize and potentially decline starting in the fourth quarter and throughout 2022 on an expanding U.S. dairy herd cull,” Basse said, noting the milk surplus is running 2% ahead of last year.

The U.S. dairy cull rate so far this year increased 2.4% over 2020. “The rising cost of feed is a concern to dairy farmers,” he said.

The U.S. is not the only country culling dairy cows. Basse said the European Union’s monthly milk production is the lowest since 2017 and Oceana’s milk production is down the most since 2016.

Milk prices

Basse said the U.S. milk price outlook will stay range-bound between a low of $15.50 per cwt. and a high of $19 per cwt. until cow numbers decline later this year. As a result, he said, milk prices will be a lot less volatile than they were in 2020 when the Class III milk price ranged from $12 to $25.

“That should help us get rid of negative PPDs,” Basse said. “Long term, fourth quarter we can be more bullish about milk prices. Today, there is just too much milk.”  

Also dragging down milk prices are massive amounts of dairy products in storage. Basse said the U.S. has record amounts of butter in storage and cheese in storage was at record levels in February. All of this will hamper milk prices through summer.

“The good news is whey prices are skyrocketing,” Basse said. “It’s all due to demand from China, who is feeding whey to piglets as they rebuild their swine herds. Rising whey prices underpins Class IV milk, which helps get rid of negative PPDs.”

Basse also noted that the U.S. share of milk exports is rising in 2021. “We are starting to build some demand.”

Inflation concerns

Basse said the U.S. government debt is expected to reach $30 trillion by July, which may raise the risk of inflation.

“If we took interest rates up to 3.4%, the U.S. government would spend more in paying off its debt than paying off all entitlement programs that exist today,” he explained. “Whether that is the U.S. military, or Social Security, or Medicare, all of that together would not stack up to the amount the government would have to pay if interest rates rose about 2% higher than they are today.”

Weather worries

Long-range weather forecasts offer concern with acute dryness over the Northern Plains and Canadian Prairies, where dryness has been an issue since October, he said.

“Much of the western two-thirds of the U.S. is going to have above-normal temperatures,” Basse said. “Weather in Wisconsin should be okay April through June. Wisconsin will be wetter this spring, which will make it difficult to make hay, but I think in general you should appreciate the moisture especially as we turn the calendar to July. Heat is a real risk for the entire central U.S. this summer,” he said.

Concern is increasing for Brazilian winter corn due to a flash drought. “Brazil is the world’s second-largest corn exporter,” Basse said.

With the record low level of corn and soybeans in storage, Basse cautioned that dairy farmers who buy most of their feed likely are struggling with high feed costs.

“If the U.S. or Brazil has a weather problem, corn and soybean meal prices will go up,” Basse said. “You really need to be careful if you are a dairy farmer who buys most of your feed.”

For more information or to listen to Basse’s Dairy Signal presentation, go to pdpw.org and click on “Access now.”

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