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Price optimism looks warranted


The leaves are changing, the first frost has arrived, and harvest is already nearing completion in some parts of the country. Attention is quickly turning to the holiday season with Thanksgiving approaching. Butter is flying off the shelves at grocery stores as consumers prepare for the holiday season, with cheese demand healthy as well. At the farm gate level, milk prices have improved versus the dismal levels noted a few months ago. However, is optimism warranted as farmers look ahead with concerns about tight margins lingering into the next several months?


From a milk production perspective, supply is not burdensome. August milk production fell 0.2% versus the prior year, marking the second consecutive month of weaker output. July production, initially reported as down 0.5% in the initial data, was revised lower to a 0.7% year-over-year decline. The August slide was anticipated, given the weaker farmer margins in recent months, a declining herd size, and lower milk per cow. Less volume from California and Texas has been persistent, impacting national milk output recently. Looking ahead, Rabobank expects milk production to be flat to lower throughout the end of this year.


National herd size was steady from July to August at 9.39 million head. During August, the dairy herds in California and Kansas shrunk, while those in Idaho, Iowa, and Michigan expanded. The U.S. dairy herd is down 54,000 head versus the March peak, but with slaughter rates slowing in recent weeks compared to summer, the herd size reduction trend will likely cease in the coming months.


Lucas Fuess

October 25, 2023

hoards.com

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