Record-high milk prices, strong dairy export demand and lower corn prices are improving the outlook for U.S. dairymen in 2014.
Drought in the West, particularly California, however, will bring higher alfalfa prices to dairymen in the region.
Optimism on dairy farms is running extremely high right now, and things are looking really good for the first time in four year, said Katelyn McCullock, dairy economist with Livestock Marketing Information Center.
Producers are enjoying the highest milk-feed ratio in five years, and U.S. dairy exports broke the record in 2013, up 39 percent on a value basis and up $1.4 billion from 2012, she said during the 2014 Idaho Hay and Forage Association conference.
USDA pegs the milk-feed ratio for February at 2.55, meaning the value of 1 pound of milk equals the value of 2.55 pounds of feed. A ratio under 2 generally means dairymen are losing money or are on the margin. A ratio of 2.5 or higher generally means dairymen are healthy enough to expand.
It’s the first time the ratio has been above 2.0 in two years, McCullock said.
The February all-milk price in federal milk marketing orders was $24.70 per hundredweight, and the Class III price for milk used to manufacture cheese was $23.35.
Class III milk prices were record high in February, and the price for Class IV milk used to manufacture milk powder and butter was record high in January, she said.
And feed costs are the lowest in a long time. Corn and hay prices have come down nationally, although alfalfa hay prices are higher in the West due to persisting drought, she said.
"People are adding cows, looking to take advantage of milk prices," she said.
Volatility in milk markets narrowed last year from the typically $5 per hundredweight swing to $2 per hundredweight. But they’ll be more volatile in 2014 and back to the 10-year norm as producers respond with more milk production, she said.
Nonetheless, milk prices are going be historically high with an annual average all-milk price of $19 to $20 per hundredweight and an annual average Class III price of $18.50 to $19.50, she said.
Milk prices will be really high in the first half of the year, peaking in this first quarter, and taper off in the second half of the year as U.S. and global milk production increases, she said.
Producers in the West, which produces 41 percent of the country’s milk and a significant amount of alfalfa hay, will face some challenges with alfalfa prices, she said.
Dairies are in a much better place right now, and dairies can probably afford higher feed prices, but they might reach a point where that is not the case, she said.
It just depends on how high alfalfa prices go and what happens to the current high price of milk, she said.
But California’s drought and hay situation is expected to have some major impacts on livestock in the state. LMIC expects 100,000 head of beef cattle will move out of the state under retained ownership to Montana, Texas and Nebraska, she said.
Movement of dairy cows is less certain. LMIC doesn’t expect dairy cows to be liquidated and sent to slaughter, but some could be sold and moved out of state to the Pacific Northwest, Idaho, Texas, and Colorado, she said.