Compared to a month earlier, Penn State’s measure of IOFC fell by 32%, with higher feed costs combining with lower milk prices. Pennsylvania hay, corn and soybean meal prices were all higher than the month before, pushing total feed costs up 3.8% (20¢/day) from December, to $5.34/cow/day, the highest level since June 2014.
USDA revised monthly Ag Prices reports, eliminating "preliminary" milk prices, based on the first half of the month. Dunn estimated the January Pennsylvania all-milk price at $18.26/cwt., down $3.34 from December 2014.
IOFC reflects daily gross milk income less feed costs for an average cow producing 65 lbs. of milk per day. January’s value for IOFC of $6.53/cow/day, down from $9.55/cow/day from December.
Measured another way, feed costs per hundredweight of milk produced averaged $8.22/cwt. in January, up 16¢ from December. With the lower milk price, the milk margin over feed costs was $10.04/cwt., down $3.50/cwt. from December 2014.
Dunn’s forecast of the average 2015 Pennsylvania all-milk price is $19.65/cwt., which would be down $5.90 (23.1%) from 2014’s average of $25.56/cwt.
Dunn’s monthly look at the market psychology included:
• Dairy product prices were mixed, with cheese and butter prices up, but powder product prices were lower. Butter prices rose by 30¢ in late January, from $1.54/lb. to $1.76/lb. Cheddar cheese rebounded after suffering a price drop earlier in January that made the net change small. Both the skim-milk powder price and the dry whey price fell by 9% since last month.
• U.S. dairy exports continue to be weak, with the U.S. Dollar rising compared to the currencies of the other major dairy exporters. The Euro dropped 5% to its lowest level in a decade, and the European Union has resorted to its version of quantitative easing, increasing the money supply and lowering interest rates. The U.S. Dollar is also up against the Australian and New Zealand Dollars since my last report, with the Aussie Dollar down 1.8% and the New Zealand Dollar down 5.6%.
• Milk production continues to grow. The latest milk production report showed December milk production up 3.1% from a year earlier, a sixth consecutive sizable monthly increase. This is bearish, although the increase was expected. Once again, the growth in milk production was mostly in milk per cow rather than higher cow numbers. The national dairy herd this December was only 1% greater than in December 2013. With falling exports, the increased milk production does not bode well for dairy prices, since our domestic market grows by much less than the recent milk production growth rate.
Internationally, Fonterra announced that New Zealand milk production is expected to fall. Conditions both there and in Australia are dry and, with a grazing dairy herd, poor grass conditions have a significant production impact.
• Futures market prices for Class III and IV have stabilized. The January Class III price was down $1.64 from December, at $16.18/cwt. The 2015 Class III futures average is $16.53/cwt., with prices weaker through May, and higher for the remainder of 2015. The January Class IV price was down $3.47/cwt. from December, at $13.23/cwt. Class IV futures prices are higher for the remainder of 2015, averaging $16.50/cwt. for the next 11 months.
To read Dunn’s complete Dairy Outlook report, click here.