Dairy prices are expected to remain strong in the near term, supported by constrained milk production. For an unprecedented 14 consecutive months, U.S. milk output declined year-over-year, down 0.1% from August 2023. This reduction in milk output has been driven by low milk prices, high cull cow prices, and the impact of highly pathogenic avian influenza (HPAI), commonly known as bird flu.
Uniform milk prices (blended) were below $20 per cwt for Arizona, California and the Pacific Northwest from February 2023 through May 2024. In May, Arizona prices rose above $20 per cwt, and California and the Pacific Northwest FMMO prices followed in June. Prices below $20 per cwt were making it difficult for dairies to break even. Many dairies decided to capitalize on rising cull cow prices and cull their less productive cows. Smaller herds meant dairies had to either keep the cows they already had, wait for their heifers to mature, and/or purchase expensive replacement heifers. This has led to dairies holding onto their older, less productive cows. This, combined with lower output from cows affected by HPAI and intense heat in July and August, has contributed to consistently lower national milk production.
Producers are more optimistic about dairy profitability for the rest of the year. Milk futures are projected to be in the $20-$23 per cwt range, and butter futures reached an all-time high in September, supporting Class IV milk prices. Although futures prices have fallen some, they still offer favorable prices for dairies. Feed costs are decreasing due to a large corn and soybean crop, and weaker export demand for hay. The Dairy Margin Coverage milk margins above feed costs rose to $13.72 per cwt in August, up 112.4% from the previous year. The Fed cut interest rates 50 basis points in September; the first rate cut in over four years. This cut will directly impact producers’ operating line rates, helping to reduce operating expenses for dairies.
Regionally, the dairy market presents a mixed picture. Washington dairy producers face some of the highest agricultural wage rates in the nation and significant processor milk check retains. In California’s San Joaquin Valley, an additional 53 dairy herds have been confirmed to have HPAI in the last 30 days as of October 2. Meanwhile, in Idaho’s Magic Valley, a new ice cream and powder blending facility has been announced, with expected completion in 2026. Arizona producers experienced favorable conditions and minimal monsoon activity. As the temperature begins to cool, southwest producers will enjoy decent margins the last quarter of 2024 though at least the first half of 2025.
Profitability
Dairy: Breakeven profitability - Bullish 12-month outlook
Increasing milk prices and reduced feed costs will enhance profitability, however, HPAI could pose headwinds.
