Current Dairy Industry Outlook and Dairy Margin Coverage Sign-Up

Jason Hartschuh, Extension Field Specialist, Dairy Management and Precision Livestock, Ohio State University Extension

Dairy margin coverage (DMC) sign-up is currently underway at your local Farm Service Agency (FSA) office through April 29th. The DMC program provided about $2.80/cwt of support in 2023 for the first 5 million pounds of milk production history if producers enrolled at the $9.50/cwt margin level. Farms received 2 months of catastrophic payments when the margin fell below $4/cwt. Figure 1 shows the actual program margin from January 2021 through January 2024 with the projection for 2024. Over the past 3 years, the DMC program when enrolled at a $9.50/cwt margin more than covered the total program premium. All current indications are for stronger milk prices in 2024 and lower feed costs; however, risk management is still critical. For tier-one coverage, there is currently a guaranteed margin payout for January and February totaling almost 60% of the program premium. While March and the rest of 2024 is projected to have margins above the $9.50/cwt level, many different domestic or international events could affect this projection by either increasing feed costs or lowering milk price. As a risk management strategy against either one of these two events, the DMC program is a very useful tool for producers. Also during the 2024 sign up, producers have the option to make a one-time adjustment to their established production to include the supplement coverage they may have had based on their 2019 production history. A graph with red line and yellow lineDescription automatically generatedFigure 1. Actual and forecasted dairy margin coverage.

In March, USDA raised the 2024 all-milk price forecast to $21.25/cwt with a reduced domestic supply and continued strong domestic demand. Butter prices are staying strong and cheddar cheese prices have had gains recently with a 2 cents yearly price projection increase. The current 2024 Class IV price forecast is $20.10/cwt. Class IV milk prices decreased recently due to a lower nonfat dry milk price forecast with weaker international demand, even though butter prices have increased. The Class III milk price forecast has increased to $17.15/cwt on stronger cheddar cheese prices, even though the whey price forecast has been lowered with weaker international demand.

The US dairy herd continued to shrink in January of 2024 by about 23,000 head compared to December 2023 or 76,000 head less than the year prior in January of 2023. Heifer inventories do not show a rapid recovery in cow numbers in 2024, but a slow recovery my begin late in 2024. Monthly milk production fluctuates in a cycle each year with January production increasing over December production and setting the production trend for the year as season herds and the spring flush begins. The January 2024 milk production was 7 lb/hd head lower than January 2023, leading to a projected lower yearly production per cow. Milk solids concentrations have been steadily increasing as shown in Figure 2. Milk fat percentage has increased 0.35% in January since 2018 when the average was 4% and in 2024 was 4.35%. The higher concentration of milk solids (fat, protein, lactose and minerals) increases processor efficiency by decreasing the amount of raw milk needed. Thus, milk with higher components is more valuable per cwt.  Figure 2. Percentages of milk fat and solids from 2018 to 2024.

U.S. milk prices are being supported by strong domestic demand; however, our dairy products are less competitive on the international market. Our strong domestic demand for butter products lead to a 68 million pound import increase in January 2024 over January 2023. While we are also still exporting milk fat products, the 2024 export volume is projected to be 11.1 billion pounds on a milk fat basis, which is lower than 2023 exports. US dairy products are projected to lack price competitiveness in 2024 on the international market. The international market is also projected to continue to have weaker demand. These two factors will weigh on US milk prices throughout 2024.

With the first quarter of 2024 coming to a close, hopefully you have reviewed your entire 2023 cost of product to look for areas to improve cost control. Now is also a good time to review your cost of production for 2024 and improve your cost controls as you can begin to project home-grown feed costs for the year. As you look over your farm’s data, be sure to evaluate if your milk solids are keeping up with national trends of more dense milk. If your milk fat and non-milk fat solids have not increased from 2018 levels, it is time to investigate why. There are many reasons why milk fat may not be increasing, including nutrition, genetics, or even facilities. Reviewing your production and economic data at least quarterly can improve farm profitability for 2024.