Protect Your Bottom Line While Dairy Production Rises

What Happened

Class III milk futures slipped into new low-price levels for the year this past week, reflecting increasing supplies due to herd expansion. Inexpensive feed, increased efficiency, and high beef prices have contributed to increased production.  

The USDA August Milk Production report (July numbers reported in August) indicated July’s production for the top 24 milk-producing states was 18.8 billion pounds, 3.5% higher than the same time the previous year. Milk per cow came in at 2,081 pounds for July, an increase of 36 pounds, and more than 1 pound per day on average. Calf prices, especially those for beef, fetched record-high prices, encouraging producers to keep older cows in the cycle and, at the same time, hold heifers to grow the herd. The herd now stands at 9.04 million milk cows, an increase of 154,000 from July 2024 and 8,000 cows more than June. 

Why This Is Important

Historically, the milk futures market is a good example of high prices curing high prices, and low prices curing low prices. Adding to the woes of milk overproduction, some producers may believe they need to outproduce their neighbor to survive. Ultimately, this adds even more supply for the market to absorb.  

Recognizing these fundamental forces can help producers develop a strategic marketing approach. Though prices are down, history indicates they can go even lower. Prices may have to get lower still, to a point where it no longer pays to add production. Currently, the market may be nearing this price level, yet there is no sign that producers are making changes other than adding to production.

What Can You Do?

Milk producers need to develop an approach to shift risk and then weigh the pros and cons of various strategies to see if changes need to occur. Without taking the time to do this, you are hoping things will improve. There’s an old saying: “Hope is not a strategy.” Communication is huge. Marketing never takes a day off. There are many tools available. Create a working knowledge of your marketing alternatives. Use the right tool at the right time that best fits you and your operation.

Find What Works For You

Work with a professional to find the strategy or strategies best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation rather than emotionally charged responses to market moves, which are always dynamic.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: (800) 334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.