Historically high milk prices and falling feed grain prices are making for strong profits for Northwest dairy producers. Strong year-to-date dairy exports and only modest gains in U.S. milk supply are adding to the mix of favorable conditions, according to Northwest Farm Credit Services.
Strong profits are driving producer reinvestments in facilities and operations rather than significant expansion, Northwest FCS reported in its quarterly market snapshots, released late last week.
Blend milk prices in Washington state through the end of the year are forecast at $20.42 to $23 per hundredweight. In Idaho, they are forecast slightly lower at $19.75 to $22 per hundredweight. Class III milk futures are ranging between the mid-$19 and mid-$22 per hundredweight through year’s end, Northwest FCS reported.
Lower corn prices, and consequently corn silage prices, are complementing high milk prices. Year-over-year corn prices are about $1 per bushel lower, with July futures prices at mid-$4 per bushel. Corn silage prices in Washington range from $36 to $42 per ton in the field and $36 to 38 in Idaho, the report stated.
Prices for dairy-quality hay, however, are high, and supplies are described as tight but available. Prices are being driven by strong local demand, as well as export and Californian demand. Hay prices at the stack are running $240 to $255 per ton in Washington and $240 to $250 per ton in Idaho.
Even higher prices are being reported where dairy producers are competing with demand from California, Northwest FCS reported.
Northwest FCS analysts report average producer profits ranging between $1.50 and $9 per hundredweight and first-quarter 2014 profits between $3 and $5 per hundredweight.
Milk production in the 23 major states was up 1.5 percent year-over-year in May, up 2.7 percent in Washington, 2.3 percent in Oregon and 0.5 percent in Idaho.
Despite good margins, producers are more focused on reinvestment versus significant expansion. Improvements and enhancements include parlor remodels, barns, corrals, mixing trucks, and pavement, with financing frequently provided by cash, the report stated.
With growing global milk supply increasing and more competition for U.S. dairy exports, Northwest FCS analysts expect milk prices to moderate but not crash through the end of the year.
They also point out potential risks, including volatility — exaggerated by increasing supplies, export competition and changing feed prices. Other risks include funding long-term investments with cash and depleting working capital, complacency in accepting current margins as the new norm and reduced labor availability for dairies.
Northwest FCS analysts did not return calls on Monday.