Strong world demand for dairy products has led to a U.S. record-shattering all-milk price of $23.20 per hundredweight in January.
That tops the previous highs of $22 in December and $21.60 in November, and feed prices are well below a year ago, said Jerry Dryer, chief market analyst for Rice Dairy, a Chicago brokerage firm.
Revenue over feed costs in January was $13.69 per hundredweight of milk, and was well above the $7 to $7.50 that typically triggers production expansion after a few months.
January marked the sixth consecutive month of prices above the trigger level, and November and December both brought revenue that topped $12 per hundredweight, Dryer said. Producers have plenty of incentive to increase milk production, but they’ve been slow to respond, he said.
Economics had producers culling heavily last year, and cow numbers are down from a year ago. There were also some pretty serious feed quality issues due to the 2012 drought, parts of the country had forage shortages last fall, and some ran out of silage before harvest, he said.
Some areas are now dealing with sporadic cold weather, which reduces per-cow production.
And with producers losing money the last five year, either producers or their bankers are being more cautious, he said.
“There’s a tendency to pay down debt rather than buy more cows,” he said.
But with heifer prices up $300 to $500 a head in the last two to three months, somebody’s buying, he said.
Producers in the Midwest are struggling with milk production, said Sarina Sharp, market analyst for Daily Dairy Report.
Forage quality has been an issue, particularly in Wisconsin and Minnesota. Weather issues forced a few loads of milk to be dumped, and the cold, wind and snow are lowering per-cow production. Cows are devoting more of their energy to stay warm, she said
U.S. milk production is responding in some areas, however. Milk production is up in the Southwest and Northeast, Sharp said.
It’s also up in California, where weather has been ideal and milk production is running 2 percent to 3 percent higher than a year ago, Dryer said.
But California is running out of water, and impacts will start showing up by March or April, voiding the first cutting of hay, he said.
With some of the best margins ever, milk production will pick up in the months to come. January probably saw a slight increase, and stronger milk production should start showing up by March and certainly by April, Sharp said.
If the weather straightens out, milk production increases will start showing up in February or March, with a pronounced response in June or July following the first harvest of the new alfalfa crop, Dryer said.