Milk and beef prices have moved higher in recent weeks, sending mixed signals to dairy producers, who for months have been struggling with rising costs for everything from feed to labor. According to Betty Berning, market analyst with the Daily Dairy Report, selling cull cows and milking cows are both now profitable.
“However, cull cow slaughter got off to a slow start in 2022, and with slaughter numbers declining, it appears dairy producers are choosing to milk cows, at least for now,” Berning said.
According to USDA data, just over 125,000 milk cows were sent to packinghouses in the first two weeks of January, down almost 10,000 head from the first two weeks of 2021.
“Staffing shortages at packing plants due to Covid-19 kept many employees home in January, and Omicron caused some meat packers to slow production due to fewer workers and federal inspectors,” Berning noted. “At the same time, though, the rally in dairy markets could also be influencing producers’ decision to keep the low end of their herd milking.”
The March Class III futures contract closed at $21.91 on February 7, up $3.87/cwt. since December 1, 2021, while the March Class IV contract was nearly as bullish, ending at $24.04, an increase of almost $5/cwt. since December 1.
“The U.S. herd milk declined in December, but the 7,000-head drop in cows from November levels was the smallest monthly decline since July 2021, perhaps signaling that producers are done culling as milking cows becomes more profitable,” Berning said.
At the same time milk prices are rising, 90% lean beef prices have also climbed. For the first four weeks of 2022, lean beef prices averaged just over $275/cwt., nearly $47/cwt. above the five-year average price for the same period, she noted.
“Increased overseas demand for U.S. beef from China, Japan, and South Korea has helped fuel the run-up in prices,” Berning said. USDA’s Cold Storage report showed beef stocks fell 6% in December, compared to December 2020.
“Furthermore, Australian exports of ground beef to the United States slowed last year as Australia’s beef herd rebuilt after the country’s drought lifted,” she added. “That added another pinch point to the supply-and-demand equation and pushed prices even higher.”
