The dairy margin calculation in the USDA Dairy Margin Coverage program in July was the lowest since the program began in 2019.
That month’s margin between milk prices and feed costs was $3.52 per hundredweight, with a milk price of $17.90 cwt. and feed costs of $13.88 cwt.
“Dairy margins at the farm level are very, very low and are at a level where you would typically see large scale liquidation,” said Katelyn McCullock, director of the Livestock Marketing Information Center.
The numbers don’t signal large-scale liquidation, she said.
That could be because while some farms are liquidating, cows aren’t exiting the herd. Or it could be these catastrophic insurance programs are helping producers weather low margins, she said.
“It’s probably a little of both,” she said.
Slight herd decline
“I would expect the U.S. cow numbers to go down. The longer the margin stays at these low levels, you’re likely to see more farms go bankrupt” or leave the dairy business, she said.
LMIC is expecting the dairy herd to decline another 50,000 head through the first quarter of next year.
The margin between milk prices and feed costs has steadily declined all year, falling $4.42 cwt. from January’s $7.94. Declining feed costs have not been enough to offset declining milk prices.
USDA expected things to improve the rest of the year. The agency is forecasting a margin of $6.41 in August with a milk price of $19.73 and feed costs at $13.32. The forecast for December is a margin of $10.02, with a milk price of $21.90 and feed costs at $11.88.
Producers who covered 5 million pounds of annual milk production or less (Tier 1 in the program) at the highest insurable margin of $9.50 cwt. will receive an indemnity payment for July of $5.98 cwt. for the milk they insured.
Producers who covered milk above 5 million pounds of annual production (Tier 2) at the highest insurable margin of $8 will receive an indemnity payment of $4.48 cwt. for the milk they insured.
Monthly margins were below $8 cwt. in the first six months of the year, with an estimated indemnity payout of nearly $1.13 billion.
USDA forecasts an average margin of $6.75 for the year, with the all-milk price averaging $20.54 and feed costs averaging $13.79.
High milk prices in 2022 supported margins despite higher feed costs.
The average all-milk price in 2022 was $25.64 with a high of $27.30 in May. The average margin was $10.73 with a high of $12.51 in May. The average feed cost was $14.83 with a high in August of $16.22.
Almost 17,000 dairy operations are enrolled in the program for 2023, nearly 74% of operations with USDA established production history for participation in USDA programs. Producers enrolled more than 156 billion pounds of milk, about 78% of established production.