A few weeks ago, the spot block cheese price exhibited unprecedented volatility. That settled down only to see volatility in the milk futures fueled by the uncertainty over the impact tariffs would have on the export market. Over the past few years, I have indicated that volatility will increase as time progresses and that certainly has been true and will continue to be true. The dairy markets will become increasingly reactive to both domestic and international news. The market is no longer what we see in our neighborhood, state, region, or country but the world. That is the reason volatility will remain significant. There will be times of stability, but those times may be brief.
Heifer prices have been increasing as the supply tightens. Some areas see replacements running up to $4,000 per head. The main reason for this is likely the desire to breed beef-on-dairy to supplement income. This has been a real benefit to dairy farms as these crosses are in demand from feedlots. Many farms have been breeding half of their cows to a beef cross as it is paying huge dividends. This has diminished the demand to cull heavily or the need to breed all of the cows to dairy bulls so one has sufficient heifers to maintain the dairy herd and some extra to sell.
This was clearly seen in the Cattle Inventory report. The report showed the number of dairy cows and replacement heifers in the country as of January 1st comparing them to a year ago. The inventory of dairy cattle on January 1st was 9.349 million head. This compares to 9.357 on January 1, 2024. The number of milk replacement heifers totaled 3.914 million head compared to 4,059 million on January 1, 2024. This resulted in a heifer-to-milk cow ratio of 41.9%, the lowest ratio recorded for the January inventory report. A big reason for this record-low ratio is the increase in beef-on-dairy interest.
Farmers have embraced breeding beef to dairy enhancing the value of claves immensely. This has been done at the expense of having a larger heifer supply. The available heifers are commanding prices upwards of around $4,000. This is not expected to change anytime soon. The price for beef on dairy calves will not remain at the current levels forever but high-priced calves will remain while beef cattle prices are high and strong consumer demand for beef remains.
What is surprising is that expansions continue to take place with some in the planning stages. More money is being budgeted to purchase cows and heifers to fill the facilities. Farm numbers continue to decline but cow numbers remain steady. The dairy landscape continues to change with farms getting larger. This impacts land rents and land prices near those farms as they need more land to haul the manure generated from the operation. These farms will pay higher rent prices to ensure they have the land they need and will pay the market price for land that comes up for sale. Some have been able to make agreements with neighboring farms to harvest the crops from the farm in exchange for the ability to put manure on the land.
It will be an interesting year with politics setting the stage for substantial volatility.
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Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
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