The recent increase in milk futures has turned traders more friendly to the market. Price increases have been short-lived, keeping the overall attitude of the market bearish. That seems to have changed, but not without some caution. Milk production has been running below a year ago during the second half of the year but finished the year at nearly the same level as 2022.
Concern may be increasing over future milk supply as farms continue to exit the dairy business and the supply of dairy replacement heifers has tightened significantly. However, it does appear that cows are moving from farm to farm rather than going to slaughter. Dairy cattle slaughter in December totaled 224,700 head for the month. This was down 5,000 head from November and down 41,600 head from December 2022. This is the lowest monthly slaughter since May 2021. Cow slaughter has not increased as much as anticipated due to the low milk prices. This may not change as a tighter heifer supply will keep cows in demand. Cow numbers are lower than a year ago, but milk production per cow for the year is higher than the average last year.
The Bi-annual Cattle Inventory report showed the number of milk cows on January 1st at 9.358 million head. This was down 41,000 head from a year ago. Replacement heifers totaled 4.059 million head, down 15,000 head from a year ago. This puts the percentage of heifers to milk cows at 43.4 percent, which was on par with last year with both years being the lowest level for January since 1998. This ratio is expected to tighten further over the next few years,
The buyers of dairy products might be looking at this and have decided to be proactive and purchase some supplies earlier at lower prices, which has resulted in the recent increase in prices. It is a period of the year during which demand tends to be slower, which may limit upside price potential. If demand improves, and inventories decline during the first half of the year, it could set the stage for higher prices later in the year.
The strength of dry whey has provided strong support under the Class III market. Most of the attention on the cash market has been on butter and cheese while dry whey has slowly increased with the price now back to the highest level it has been since June 17, 2022. The increase in the price of dry whey over just the past three weeks has added about 62 cents to the Class III price.
Butter is expected to remain stronger than cheese which will keep Class IV milk prices significantly higher than Class III prices. Butter prices could be more explosive as the year progresses if export demand begins to improve.
For more on markets, read:
- Production Remains Strong Despite Fewer Cows, Just Take a Look
- Global Demand for Cheese Continues to Climb
- How to Increase the Marketability of Beef-on-Dairy Calves
- 5 Financial Expert Tips to Help Producers During Tough Times
- You Ain’t Seen Nothing Yet: Why Economists Say Cattle Prices Will Soar Even Higher This Year
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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