Heading into the holidays, dairy producers have something to be grateful for. Milk-over-feed margins are at historical highs, and feed costs have softened. According to Betty Berning, analyst with the Daily Dairy Report, robust margins could continue into the foreseeable future. If current margins persist, she said, producers will continue to increase output despite a host of challenges.
September margins, reported by USDA’s Dairy Margin Coverage (DMC) program hit an all-time high in September of $15.57/cwt., $2 higher than the previous record hit just a month earlier. Both high cheese prices and lower feed costs helped to boost the margin. CME spot barrel prices climbed to all-time highs of $2.6225/lb. in September, and blocks reached a 2024 high of $2.315/lb. Both increases supported Class III prices, which in turn boosted the All-Milk price, Berning noted.
“September’s All-Milk price of $25.50/cwt. was one of the highest on record, giving producers lots of black ink. The last time that price level was breached was nearly two years ago in November 2022,” Berning said. “In addition, cheap feed costs helped keep the expense side of the ledger down.”
In August and September, corn prices used in the DMC calculations were under $4/bu., which has not happened since early 2021. In addition, soybean meal prices under $350/ton and hay prices of $227/ton helped keep feed expenses low. Both soybean meal and hay were at or near prices not seen since 2021.
“It is uncommon to see high milk prices and cheap feed costs at the same time. For example, milk was worth 6.4 times the value of a bushel of corn in September, which is the highest milk-to-corn ratio since 2014,” Berning said. “Producers will likely take advantage of strong margins by paying down debt accrued in 2023, when the DMC margin fell to a record low of $3.52/cwt. Those with low debt levels will likely reinvest in their operations or build savings.”
Some producers could also choose to feed a higher-end ration to push component values and optimize milk production, she said, while others use profits to improve cow comfort and maximize performance.
“While some producers may want to expand, it will be difficult. Heifer inventories are at historically low levels, and that is the primary bottleneck to growing the U.S. herd,” Berning said. “Cow numbers have stabilized, so some operations could buy more heifers if they are available. At the same time, high interest rates will also limit producers from taking on large capital projects.”
Improved margins could already be influencing milk per cow, helping to explain the past two months of year-over-year growth in U.S. milk production. “August’s and September’s yields set records for those months, and it seems likely that greater cow comfort measures and improved rations are already being implemented,” she said.
As of October 31, futures markets were predicting that October through December margins would range between $13.32 and $14.85/cwt., well above the $9.50/cwt. trigger point for high-end DMC coverage, she said. For next year, USDA is forecasting a $22.75/cwt. All-Milk price. It also has forecast average prices of $4.10/bu. for corn and $320/ton soybean meal for the 2024-25 crop year.
“If these estimates are correct, margins would stay near 2024’s lofty levels. With futures predicting milk prices above $19/cwt. in coming months and low feed costs, producers will have opportunities to lock in margins,” she said. However, with U.S. milk production returning to growth, increasing supply would likely begin to weigh on milk prices, diminishing margins, she added.
