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Margins Below $7 for Fifth Straight Month

August 3, 2021

Driven by high feed and other costs, the bottom line for U.S. dairies continues to worsen. Costs for everything from labor to feed to transportation have increased.

June’s milk margin above feed costs used in the Dairy Margin Coverage (DMC) calculations dropped 65¢ to $6.24 from May, marking the fifth month running that the margin has been under $7/cwt., the longest stretch since at least 2014. The second longest stretch of sub-$7 margins occurred in 2018, when they dropped below that level for four consecutive months.

Both alfalfa and corn prices used in the calculations have climbed to levels not seen in years. The June alfalfa price climbed to $210/ton in May, before exceeding $214 in June as competition for hay, particularly in areas affected by drought, continues to raise the price for all qualities of hay. Before May, the blended alfalfa price had not been above $200/ton since spring 2019 when it hit a high that year of $213/ton in May.

The corn price in June’s DMC calculations reached $6/bu., almost twice June 2020’s $3.16 and by far the highest price used in the calculations since 2014. At just above $378/ton, soybean meal prices fell below $400/ton for the first time this year, returning to their lowest level since October 2020, but they remain $100/ ton above June 2020 prices.

Dairies have also been dealing with rising transportation and labor costs, which are not factored into the DMC margin. For instance, the U.S. No. 2 retail diesel for the week of Aug 2 hit $3.37/ gal., 94¢ higher than a year ago.

Today’s Global Dairy Trade (GDT) index fell 1% to $3,784/metric ton, the eighth consecutive drop. A 3.8% reduction in the whole milk powder price primarily drove the index’s decline. Meanwhile, GDT butter prices logged their first increase since early April. And after four straight declines, skim milk powder (SMP) prices advanced. Fonterra recently announced that its SMP offerings at today’s auction as well as at future events would be lower than forecast due to strong demand outside of the GDT trading platform.


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