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The U.S. dairy industry is coming off the highs of 2014, a year with positive milk-to-feed price ratios and high export volumes and prices. According to the USDA’s Economic Research Report, U.S. milk production grew by 2.4 percent over 2013.
However, the first quarter of 2015 has seen a drop in milk prices driven by reduced export demand and increased production in other countries. In its North American Agribusiness Review, Rabobank analysts suggest that 2015 may “be a tough year for dairy farmers.” The bank cites the popularity of the USDA’s new Margin Protection Program, a 2014 Farm Bill initiative that saw 50 percent of U.S. dairy producers enroll in its first year, as proof of the industry’s interest in finding hedging strategies to protect its margins.
Does the program’s popularity hint at things to come? Not necessarily. While milk prices may continue to drop, by all accounts, margins remain strong, meaning that it is unlikely producers will cash in on these added protections this year.
While last year’s dairy boom increased feed volumes, softening milk prices – and the prospect of dairy operators tightening their belts -- is causing feed millers to approach 2015 production forecasts with caution.
“After farmers come off a good year, they tend to milk any cow that can be profitable, a strategy which includes keeping certain cows around longer than normal,” explains Dave Nuss, sales manager with U.S.-based dairy and cattle feed producer J.D. Heiskell & Co. “We saw dairymen really dialing into their herds and feeding more aggressively, but now it’s back to reality.”
The bright side: Low feed prices. The cost and surplus of grain stocks should lessen the blow of reduced prices – a trend that benefits both the producer and the feed manufacturer.
Nuss, who is based out of JDH’s California location, remains optimistic: “Though dairy prices have come down a lot, I expect that our volumes in the dairy industry will probably hold the steady, maybe increase a little. For every cow in the industry, there is a calf – we want to be part of that business.”
That optimism is widespread. Based on my conversations with dairy feed producers, without any major disruptions (e.g. weather, drought), the sentiment is similar across the board: Volumes may go up but, if nothing else, they may flatten.