Feed costs on U.S. dairies were down an average of $1.37 per hundredweight of milk January through October compared with the same period in 2014, running $11.93 compared with $13.30, according to the USDA cost of production report.
Lower feed costs largely contributed to the $1.61 decrease in operating costs and a $1.45 decrease in total costs during that time period, according to the report.
But milk prices were also down, with federal order Class III prices in all of 2015 averaging $15.80 per hundredweight, down $6.54 compared with an average $22.34 in 2014.
Income over feed costs for Class III milk from January through October was $4.05 per hundredweight, less than half the $9.10 average for all of 2014.
Lower feed costs are “absolutely helping, but it’s not enough to make up for the decline in milk prices,” said Sarina Sharp, market analyst for the Daily Dairy Report.
The industry is nowhere near the bleak situation of 2009, when milk prices were several dollars lower and feed costs were substantially higher, she said.
Markets vary and margins are generally slim but adequate in the Midwest — with expansion limited by capacity rather than budget — and below break-even in the West, where producers are tightening their belts, she said.
Cost of production declined consistently throughout 2015, which was somewhat remarkable. Large global supplies of corn and soybeans saw prices continue to slip after harvest, she said.
“Global supplies really are big,” she said.
Back-to-back good production in recent years and higher expected production and exports in South America in 2016 should keep feed costs low in the year ahead, barring any weather issues or surprising uptick in demand, she said.
Where milk prices will go is the million-dollar question. But given the large inventories of dairy products and continued strong milk production in Europe, it could be a while before prices rebound, she said.
Some analysts are saying prices could start to rebound in the second half of the year but there would have to be slower milk production growth in Europe and the U.S. — or an increase in demand, largely in China’s appetite for milk powder, she said.
Source: Capital Press
