Dairy Margin Watch: January squeeze continues
Dairy margins deteriorated over the first half of January, with a sharp drop noted in the second quarter of 2015, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging, LLC. Looking ahead, margins are generally stronger in the second half of the year, with an expectation of higher milk prices based on the forward futures curve. Even there however, margins only remain just below the 60th percentile of the past 10 years, and well below where they existed just one month ago.
A significant drop in milk prices has contributed to the weaker margin profile, although feed costs have declined as well to begin the new year. Milk prices are being pressured by sharply lower trade in spot cheese at the Chicago Mercantile Exchange (CME), with blocks and barrels down about 15¢ in the past two sessions, to under $1.50/lb.
The January World Ag Supply & Demand Estimates (WASDE) report lowered USDA’s 2015 milk production estimate for the third consecutive month, to 211.7 billion lbs., although this still would be 2.8% higher than 2014. While the production outlook has been tempered recently as producers cull cows in response to deteriorating margins, there remains concern over the near-term – particularly during the spring flush period.
Meanwhile, feed costs have been declining, despite what was generally deemed a bullish January crop report for corn. In addition to the monthly WASDE, USDA released their final production figures along with quarterly stocks as of Dec. 1. Corn production was reported down 191 million bushels, to 14.216 billion, with yield below trade estimates, at 171 bushels per acre. Alfalfa prices have been under pressure recently from weaker exports and higher stocks, while soybean meal prices are also in retreat.
CHI has scheduled a number of dairy and other margin management educational programs in 2015. Visit www.cihmarginwatch.com.
Weekly dairy cow slaughter under federal inspection
Week ending Jan. 3: 48,200 head
Year-to-date (YTD) 2015: 48,200 head
YTD compared to same period 2014: -3,000 head
Highlights: For the week, 23% came from USDA Zone 5 (IL, IN, MI, MN, OH & WI); 30% came from USDA Zone 9 (AZ, CA, HI & NV).
Source: USDA Weekly Cow Slaughter Report
Dairy cow slaughter during 2014 was estimated at 2.805 million head, down 307,700 head (9.8%) compared with 2013. This marks the lowest annual dairy cow slaughter rate since 2010.
Source: Dairy Farmers of America