Recent Feed Prices and the Dairy Market
Prices of major grains for dairy cattle rations have been very volatile, but mostly reflect continuous increases since the beginning of the pandemic, due to logistic challenges and severe droughts. Feed cost has shifted dramatically higher and has inevitably rippled through the cost of dairy production.
Based on the latest USDA data (July 2021), the national average for corn grain was $6.82/bushel and alfalfa hay at $226/ton as of the end of June 2021. For reference, June 2020 saw corn grain at $3.34/bushel and alfalfa hay at $189/ton, respectively.
The breakeven for dairy farmers will now be somewhere around $16.20 for Class III milk. Normally, higher grain prices would result in lower milk production due to farmers shifting to lower cost diets and heavier culling rate in their herds. However, milk prices may be higher next year if grain prices remain high mainly due to recovering demand following the domestic distribution of COVID-19 vaccine.
Another impact of increased feed prices is mega dairies will continue gaining market share as small operators struggle to survive.
Both domestic dairy demand and the U.S. export to international customers will be key for continued dairy growth. We are seeing a trend for greater milk output as the U.S. recovers from the pandemic. as well as a small but steady increase in milk cow numbers (9.39 million in 2020 vs. 9.50 million forecasted in 2021). The domestic market has been absorbing higher milk production as the food service industry steadily improves, especially as restaurant traffic picked up more rapidly than expected. However, since the COVID-19 vaccine has not been widely available in many parts of the world, the recovery on demand of U.S. dairy exports may still take months to rebound.
The good news is that U.S. dairy products have been price competitive in the world market, and total exports are up 11.2% during Q1 this year.
Fei Sun, PhD, PAS
Dairy Product Technical Manager, Origination LLC.