Declining grain prices are not generating many smiles in the ag sector, unless you turn to livestock industries, like dairy, where lower grain prices mean cheaper feed rations. This trend is providing relief for dairy producers and adding a layer of optimism in times when other sectors are scrambling for profitability.
Independent dairy financial consultant, Gary Sipiorski, notes that feed costs comprise a significant portion of the dairy farm’s gross income, ranging between 20% to 45%, depending on the amount of feed produced by the farm itself.
“If you purchase all your feed, your feed cost will push to be around 50% of the milk check,” Sipiorski explains. “Feed is the biggest cost to a dairy and each farm needs to individually evaluate depending on variables such as needs and forage quality.”
Positive Financial Indicators
Phil Plourd, president of Ever.Ag Insights, shares a more optimistic view from a broader perspective. According to their models, there’s a notable decrease in costs, occurring simultaneously with some of the highest milk futures seen in recent years.
“As a result, prospective margins look as good as they have in two years,” Plourd says. “But as our customers remind us, that’s on paper. Is the on-the-ground reality as good? That’s hard to say.”
Long-Term Opportunities
Jay Matthews, vice president of feed and dairy producer division for Ever.Ag, echoes the positive sentiment. He highlights that the current declining grain prices are a significant win for dairy producers.
“And with milk pricing holding support for the time being, margins are looking very attractive for dairies as we push forward,” Matthews states, advising producers to consider stepping into new crop physical purchases. “They should definitely have hedges on by now for new crop ownership, especially if they are going to wait for better basis levels on corn and protein.”
Matthews cautions against complacency, as unpredictable weather and seasonal changes could disrupt this current advantage. He mentions the risk of managed money covering their massive net-short position through the summer, particularly if any adverse weather patterns emerge.
Monica Ganely, analyst with the Daily Dairy Report and founder and principal of Quarterra, shares striking data on feed costs. According to Ganely, May’s feed costs were nearly $3 per cwt. lower compared to the same time last year and the lowest since 2021.
While the entire ag sector grapples with various challenges, declining grain prices are delivering a much-needed break for dairy producers. With feed costs constituting a major expense, this reduction allows for healthier profit margins and a more optimistic outlook. However, it’s crucial for producers to remain vigilant and proactive in safeguarding these gains against market volatility and environmental uncertainties.
