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Dairy Producer Margins Hit 18-Month High Amidst Variable Market Conditions

USA 04.07.2024
Source: The DairyNews
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Dairy producers are experiencing the highest margins in over a year, as reported by the Milk Margin Above Feed Costs in the Dairy Margin Coverage (DMC) program. Monica Ganely, an analyst with the Daily Dairy Report and founder of Quarterra, noted that margins reached $10.52/cwt. in May, a 92-cent increase from April, marking the strongest margin since November 2022.
Dairy Producer Margins Hit 18-Month High Amidst Variable Market Conditions
The rise in margins comes as a positive signal for dairy producers, suggesting an opportune moment to increase output. However, Ganely pointed out several challenges that are currently holding back U.S. producers from expanding their operations. These include animal health issues, high financing costs, and a scarcity of replacement animals, which are significantly impacting the sector’s capability to capitalize on these higher margins.

A significant driver behind the increased margins is the stronger milk prices, with the All-Milk price climbing to $22/cwt. in May, up $1.50 from the previous month, and the highest since January 2023. This increase is largely attributed to rises in Class IV and particularly Class III milk prices, which saw a substantial jump over April. Despite this positive trend, futures markets are indicating potential decreases in milk prices, especially for Class III.

Conversely, feed costs saw a modest increase from April but remain much lower than in previous years, contributing positively to the overall margin. The calculated feed costs by the DMC program were reported at $11.48/cwt. in May, up 58 cents from April, but nearly $3/cwt. lower than the same time last year and the lowest since 2021.

Despite the promising financial environment, the broader dairy market faces headwinds, particularly from the export sector. U.S. dairy exports dipped in May, falling below the levels of the previous year after seeing growth in April. Weak demand from Asia has continued to weigh on the market, although exports to Mexico have seen significant increases. Cheese exports, for instance, soared by 46.6% in May, setting a record for the month, with Mexico receiving over 40 million pounds.
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