One of the more common questions I’ve received has been, “If heifer supplies are tight, how can cow numbers increase as much as they have?” Of course, there is disbelief in the reports as some believe the USDA is reporting wrong numbers. That is a common theme throughout the agricultural industry, with all USDA reports questioned for accuracy depending on whether the individual is on the wrong side of the market or if the numbers are different from what the person anticipated. We have all had these thoughts from time to time.
Farmers Holding on to More Cows
High heifer prices and a tight supply have resulted in farmers holding on to more cows. The bar for milk production is lowered as it would be very costly to buy a replacement heifer. It makes sense to have lower milk production from a cow already owned than to buy a replacement heifer, which will take some time to pay for itself before it can make money.
Reduced Culling and Growing Herd Numbers
The monthly slaughter reports have shown substantial decreases in dairy cattle slaughter over the past year. This has allowed cow numbers to increase to 9.405 million head in February. This is the largest herd since May 2023. Culling has decreased due to higher heifer prices, but also because farmers do not need to cull cows as much to generate extra income to pay bills.
Beef-on-Dairy’s Impact
A substantial amount of money is being generated from beef-on-dairy. These calves are bringing phenomenal prices, adding significantly to the farm income. This has tightened the heifer supply substantially and has allowed the dairy herd to increase as lower-producing cows are being held.
Milk Production and Herd Composition
Milk per cow may be reduced somewhat, as some of the cows in the herds will produce less milk as they are older or have less genetic capability than a heifer. However, higher cow numbers will make up some or all of the difference, keeping milk production strong. The evidence of this was seen in the February milk production report, as milk production was higher than the previous year when the adjustment was made for leap day.
Butter Inventory and Market Impact
The February Cold Storage report was neutral to the market, indicating prices have little reason to change much from the sideways direction they have established. The most significant category was butter, with the inventory gaining 44.8 million pounds. This was a large increase considering there was one less day this year than in February 2024. Historical gains in butter inventory for the year following leap year showed limited gains and sometimes even declines. Interestingly, the USDA revised January stocks down 9.5 million pounds from what they initially reported. That was an unusually large revision, reducing the bearishness of the January report but adding to the bearishness of the February report.
Limited Upside for Butter Prices
Unless butter demand improves significantly, the price will remain rangebound for an extended period. Sellers continue to offer loads to the spot market as they limit the increase in manufacturing inventories. They have no desire to hold for higher prices as they see limited upside potential. Buyers have been able to purchase supplies for immediate orders and purchase for later demand without the need to chase the market higher. Butter is being frozen for later, limiting the need to purchase butter when demand seasonally improves.
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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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