By Lee Mielke

 The Jan. 3 Dairy Radio Now looked at lies ahead in the New Year in the broadcast with Bill Brooks, dairy economist at Stoneheart Consulting in Dearborn, Missouri.

Brooks predicted “It should be a better profitability year for dairy farmers,” but warned “that’s contingent on the weather and how that impacts our main input prices as far as feed costs.” Feed costs finished 2021 strong, he said, but milk prices finished 2021 fairly strong as well.

The Agriculture Department has made changes to the risk management Dairy Margin Coverage (DMC) program, with respect to previous year eligible milk marketings as well as the feed price calculation, which will now be based on 100% premium alfalfa hay, instead of the 50/50 hay blend. 

Many of the changes will be retroactive, according to Brooks, and result in additional benefits to dairy producers so it behooves them to check with their local Farm Service Agency (FSA) office for complete details.

Brooks says international dairy prices look strong and that is helping firm U.S. prices, especially on butter, where $3 per pound plus is a global reality and could potentially move our price higher. 

Cheese prices will hopefully remain strong, he said, as economies open more, so “We’re looking at a better price year than what we experienced in 2021 and it should be a better profitability year for us.”

Meanwhile, a higher November All Milk Price offset higher corn and soybean prices to nudge the November milk feed ratio higher for the third month in a row. The USDA’s latest Ag Prices report has the ratio at 1.94, up from 1.87 in October, but well below last year’s 2.58.

The index is based on the current milk price in relationship to feed prices for a ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. In other words, one pound of milk would purchase 1.94 pounds of dairy feed of that blend.

The U.S. All Milk Price averaged $20.80 per cwt., up $1.10 from October but was 30 cents below November 2020. 

Looking at the cow side of the ledger; the November cull price for beef and dairy combined averaged $69.20 per cwt., down $1.40 from October, $9.90 above November 2020, but is $2.40 below the 2011 base average of $71.60 per cwt.

Brooks said, “A DMC payment is expected for the eleventh time in 2021 and twelfth month straight when the FSA announces the November 2021 milk margin above feed costs. The milk margin above feed costs is expected to be $9.14 per cwt. for November, a gain of 60 cents over October’s level and the highest since November 2020 when the margin was $11.64. Dairy producers with coverage at the $9.50 per cwt. level would expect to see a payment on eligible November milk production,” according to Brooks.

The StoneX Dairy Group stated in its Dec. 27 ‘Early Morning Update’ that “The second half of 2021 was marked by an increased willingness, or need, for producers to cull animals. That said, the 4-week rolling total of dairy cows slaughtered has been trending down over the last 3 months. Week-to-week the majority of slaughter levels have been higher than year-ago levels, but the surplus over last year has been declining. The contraction seems to be slowing down,” StoneX concluded, “as higher milk prices encourage farmers to keep animals in the herd.”

Cash dairy prices finished 2021, mostly higher and it was a full week of trading. The 40-pound Cheddar blocks closed the last day of the year at $1.98 per pound, up 10.75 cents on the week, highest since Nov. 12, 2020, 12.25 cents above where they were on December 1, and 33 cents above that week a year ago.

Butter had a great week after jumping 15.75 cents the previous week and soared to a Friday close at $2.4525 per pound, 20.25 cents higher on the week, highest since Sept. 21, 2017, 47.25 cents above its December 1 perch, and $1.0325 above a year ago when it dropped 10.50 cents to $1.42. The U.S. price is narrowing the gap to global levels. There were 30 trades reported on the week and 149 for the month, up from 62 in November.

Butter producers are running churns as much as possible, says DMN. Bulk butter is very tight as the final weeks of 2021 brought increasing interest from customers in all varieties of butter from salted 80% to unsalted 82% butterfat. 

Cream is available in the West, though some contacts reported that severe weather and a shortage of truck drivers was limiting their ability to deliver loads to production facilities. Cream demand is steady to lower as some Class II producers in the region were running lighter year-end holiday schedules. Steady demand is present for butter in both retail and food service markets. Some purchasers are, reportedly, looking for extra loads of butter to build inventories but spot loads of butter are growing increasingly scarce. Some purchasers report that they are unable to find loads of unsalted butter to meet current demands. Strong demand and limited availability have contributed to the higher prices, says DMN. Butter makers are, reportedly, running below capacity due to shipping delays and labor shortages in the region.

Looking ahead to the first Global Dairy Trade auction of 2022, HighGround Dairy stated in its pre-GDT analysis; “High feed costs, strong global demand, a lack of production growth and general commodity inflation are the key drivers that will likely keep global dairy product prices elevated into the first half of 2022. While dairy producers in key exporting regions are being given signals to expand (raw milk prices are quickly on the rise in the US and Europe), the first high feed cost environment since 2013/14 may prevent farmers from aggressive growth plans for the coming months.”

The National Milk Producers Federation’s final Market Report of 2021 stated that “The rapid evaporation of growth in dairy cows, milk and milk solids production dropped all three into negative territory during October. These supply-side effects have dominated the dairy situation recently and will continue to do so well into the coming year. Domestic consumption growth of all milk and dairy products has been somewhat sluggish in recent months, but U.S. dairy exports during the first ten months of 2021 have set a new volume record of 17.6% of U.S. milk solids production, well above this measure’s second-highest year, 2020 at 16.3%.”