What Happened
The November USDA Milk Production report, which covered October 2024 milk production activity, confirmed what many were anticipating: more milk cows. A strong price advance for the second half of 2024, where futures contracts gained more than 20%, was likely enough incentive for producers to build the herd. This was echoed when the Nov. 20 report indicated that cow numbers in the top 24 producing states had increased by 21,000 compared to October 2023. Total numbers in the survey are now estimated at 8.92 million. Production per cow in October was at 2,013 pounds, a 4-pound increase from October 2023.
Why This Is Important
The report indicated dairy producers responded to higher prices. It didn’t take long for prices to retreat $3–$4 after futures peaked in early fall. The impact of the supply increase may make it more difficult for prices to rally in the future. When they do rally, it may be short-lived. The dairy industry has a history of responding to higher prices with more production. The key for producers is to become risk-shifters and develop a strategy to defend price rallies as they happen. Forward contracting, buying puts, and hedging (selling futures) are good tools that shift risk. Each strategy has its own merits.
By Bryan Doherty
Published on December 13, 2024
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