Turbulence in the Dairy Industry

Dr. Maurice Eastridge, Professor and Extension Dairy Specialist, Department of Animal Sciences, The Ohio State University

Spring is underway, and thus, we expect it to be windy. However, the direction from which the wind is blowing can affect the warmth or chill experienced. In addition, the magnitude of the gusts can determine the impact of the wind. This somewhat describes the current pandemic situation on the direct and indirect impacts to the dairy industry. Domestic demand and exports are in flux on the dairy product side. On Friday, March 27, prices for all market classes fell for dairy products given the uncertainly of domestic demand with suspension of the operation of restaurants, fluctuating demand in retail stores, and uncertainly of the benefit of recently approved USDA funds to benefit farmers. An article appearing in Hoard’s Dairyman during March (https://hoards.com/article-27491-covid-19-will-dairy-demand-hit-the-ditch.html) estimates that milk equivalent usage drops 1.3% for a COVID-19 month compared to a normal month. Among other changes are the shifts in components prices, mainly the focus on fat and protein, as discussed in the January Issue of Buckeye Dairy News.

With less travel in the US with the ‘shelter in place’, fuel use for automobiles has drastically dropped and thus so has gas prices. The average US gas price today is $2.02/gal, which is $0.67 less than one year ago, $0.43 less than a month ago, and $0.11 less than one week ago, with some areas reporting $1.30/gal or less. With this lower demand for fuel, the demand for ethanol follows. Because of this lower demand, some ethanol plants are reducing production and others are closing. This is having a gusty impact on the availability and price of distillers grains and a downward impact on the price of corn. Distillers grains are fed to livestock for energy from the fiber and fat and for protein. Thus, the reduced availability of distillers grains will increase the demand and price for soybean meal as an alternative protein source. These trends are already been observed in the market place with increased prices for 48% soybean meal and distillers grains and a reduction in the price of corn from January to March as evidenced by the article written by April Frye in each issue of the Buckeye Dairy News (Table 1). From January to March, the price of distillers gains increased $22/T, corn decreased $4/T, and soybean meal increased $16/T. Although each of these feeds are ‘good buys’ based on the predicted values, this will not remain for distillers grains because of lack of availability. At current prices, the substitution of corn and 48% soybean meal for the distillers grains will have minimum effect on feed cost. In addition to soybean meal, be observant to other sources of protein that may be economical for feeding (see Table 3 in April’s article in this issue of BDN).

As storms develop, we often are unable to measure the impact until after the event due to the uncertainty of the damage before it hits. While many of us were focusing on the many aspects of COVID-19 on our personal life, our work situation, and some segments of the dairy industry, we were not expecting the impact on feed prices by closure of ethanol plants. There will most likely be other direct and indirect impacts yet arise. With the current changes in the price for milk components and the changes in feed ingredient prices, a careful look at rations with your nutritionist is necessary and then monitor income over feed costs after ration changes are made. Be watchful and know when to take cover and when to keep plowing ahead.

Table 1. Actual and predicted prices for corn, distillers dried grains, and soybean meal for January and March, 2020.





Feed

January 2020

March 2020


Actual ($/ton)

Predicted Value ($/T)


Actual ($/ton)

Predicted Value ($/T)

Corn, dry ground

153

183

149

172

Distillers dried grains

152

239

174

223

Soybean meal, 48% CP

296

303

312

297