The cost of feeding dairy cows has been soaring, said Nate Donnay, director of dairy market insight at StoneX Group. That’s forcing dairy farmers to slash herds. Corn futures in Chicago are up 29% from a year ago and touched an eight-year high back in May.
The U.S. herd shrank by 85,000 cows between June and September, the biggest four-month drop since 2009. Milk production is consequently less than expected, rising in September just 0.2% from last year, falling way short of StoneX’s forecast of 1.3%.
Lower milk production could mean that prices for dairy products could be more expensive, and add to rising food inflation that’s already hitting Americans’ wallets.
“We’ve never seen a drop this big without a more severe drop in margins preceding it,” Donnay said in a report.
Prices for American dairy products have been climbing recently, helped by the bullish production report, said Matt Gould, editor of The Dairy Market Analyst. Global milk supplies are tight, and butter in particular is limited, he said.