In June, U.S. milk production experienced its eleventh consecutive month of decline, dropping by 1% year over year. Although milk production has dropped, components have increased. The western U.S. faces even steeper production declines than other regions, with New Mexico, Arizona and California seeing year-over-year reductions of 12.5%, 3.9%, and 1.8%, respectively. Given that milk production numbers are released three weeks after the end of the month, it is anticipated that July’s milk production will show an even greater decrease due to the extreme heat experienced during the month. Death loss is becoming less of an issue during extreme heat as facilities modernize with soakers, fans and other improvements.
Dairy market reports have been bullish, with Class III (cheese) milk futures projected to remain above $19.50 per hundredweight (cwt) for the rest of the year, and Class IV (butter and NFDM) milk futures expected to stay above $21 per cwt in the near term. These higher prices and falling feed costs will benefit dairies but are not sufficient to offset the losses incurred from lower prices in the first half of 2024. Despite some improvements in margins, they are unlikely to be enough to incentivize growing herds. Additionally, increases in beef-on-dairy breeding programs and the high costs for springers (young cows) complicate potential herd expansion decisions for dairies.
As of August 5, 179 dairy herds nationwide have been infected with highly pathogenic avian influenza (HPAI) since it was first detected in March. Idaho remains the only state in AgWest’s territory impacted with a total of 30 herds infected. So far, most herds can recover from HPAI with temporary reductions in milk production. Financial help is available through the USDA for dairies affected by HPAI.
Profitability
Dairies are under considerable financial stress. Even with lowering feed costs, profit margins will need time to recover. Nationally, dairy producers have seen milk prices drop by over $2 per cwt in the last year. Northwest states saw even larger reductions in milk prices. In Idaho, the January 2024 average price was $20.20 per cwt, a decrease of $2.30 from the previous year. Similarly, Washington producers faced a $2.50 reduction per cwt in milk prices. Many Washington dairies also have higher milk check retention costs as cooperatives may withhold a portion of their milk check payment to support the cooperative’s goal, such as building new facilities. Although feed costs have decreased by over $4 per cwt over the past year, it's insufficient for producers to reach their breakeven point. Non-feed production expenses have leveled off but remain high. Even with a rise in future prices, it may not be enough to offset production costs in 2024. The milk-to-feed ratio (a measure of how much feed can be purchased with the revenue from one pound of milk, commonly used as a proxy for dairy profitability) paints a bleak picture, signaling that many dairy farms will continue to operate at a loss. Careful management of expenses, capital investments and risk management strategies are crucial.
12-Month Profitability Outlook
