Global milk production contracting, analyst says

Global dairy demand is holding up, but milk production is starting to contract, a dairy analyst says.

Weather conditions are influencing production in Australia and the European Union, and production growth in Oceania and Europe is challenged by new environmental regulations.

“We’re starting to see some headwinds to long-term growth,” Dustin Winston, dairy analyst with StoneX, said during the University of Idaho Ag Outlook Seminar.

In the U.S., milk production was below year-earlier levels July through November, according to USDA.

Cow culling

Dairy cow slaughter was running strong at the beginning of the year, laying the foundation for slower production growth. But the slaughter rate has slowed dramatically in the last few months, he said.

“We will need to keep slaughter levels low moving into 2024 in order to have enough milk to fill the additional processing capacity coming on board at the end of 2024 and into 2025. The herd will need to grow in order to meet the needs of this new capacity,” he told Capital Press.

But growing the herd will take some time because dairy farmers have been culling cows faster than they can be replaced. Although the U.S. has turned back slaughter levels, USDA has been reporting a decline in the herd over the last several months, which tells him the level of replacement heifers is low, he said.

“Currently, it is very expensive to buy a replacement heifer, but if a farmer needs the cow then there aren’t many options to avoid paying unless they are looking to slim their herd size,” he said.

Feed costs

There’s been a little improvement in the gross margin as a result of lower feed costs. Idaho’s feed costs have come down and are looking flat, with a gross margin of about $6 to $7 per hundredweight of milk, he said.

The Class III milk price is increasing and is about $18 to $18.50 cwt. now in the futures market. Components in Idaho’s milk bring an additional $3 cwt, so milk prices in Idaho are about $21 to $22 cwt., he said.

“I expect margins to continue to improve in 2024 as feed costs are likely to stay at these levels given the large (corn) crop expected globally. We do expect milk prices to improve a bit as well,” he said.

With milk supply a little short and new capacity coming on, he expects a bit of a bidding war on milk.

Dairy demand

Domestic demand has been holding up, and foreign buyers will be looking to the U.S. in the first half of the year because U.S. prices are the lowest in the global market, he said.

He expects U.S. milk production to grow in 2024 if margins improve to support farmers’ interest in growing. Global milk production might lag a bit with constricted growth in Europe and New Zealand, he said.

Source : Dec 18th 2023, by Dustin WinstonCarol Ryan Dumas/Capital Press