Prices for feed, milk, and lean beef are all at or near record-highs. Lofty feed and lean beef prices are competing with historically high milk prices, sending conflicting signals to U.S. dairy producers.
Sarina Sharp, analyst with the Daily Dairy Report, noted that “soaring milk prices clearly incentivize greater milk output, but dairy producers cannot step-up production without adding cows and using more costly feed.”
Some dairy producers have large on-farm inventories and others have contracted feed at a base prices lower than today’s market prices, but even for these producers, bringing additional cows into the herd would mean they would use their on-farm feed supplies more quickly and need to buy more feed at today’s higher market prices.
Heifer replacement prices are also climbing, and demand for springers has been good. The average value of springers at selected auctions around the country topped $1,500/head in March, the first time since 2017.
“Dairy producers across the country are clearly willing to pay more for springing heifers,” Sharp said. “At first glance, this suggests high milk prices outweigh steep feed costs and that dairy producers are eager to add cows to their herds.”
However, she said, skyrocketing feed costs are likely forcing producers to take a closer look at culling, and thus newly purchased heifers are likely replacing the low end of the milking string. Today’s high beef prices are further adding to the incentive to cull and replace low-producing cows by allowing dairy producers to simultaneously reduce their feed costs per hundredweight of milk produced and cash a big beef check, Sharp added.
“If high milk prices push dairy producers to add a significant number of cows, U.S. milk production will climb quickly and remain high even if milk prices retreat,” she noted. “On the other hand, if producers try to improve productivity without adding a lot of new cows, U.S. milk yields will climb, but total milk output will rise more slowly.”
Thus, while the market is signaling to dairy producers that much more milk is needed, the cost to produce significantly more milk could be too high for them to take that risk. If milk prices were to weaken, they could be stuck buying pricey feed and their feed costs per hundredweight of milk produced would soar.
