“Nothing good happens after 11 p.m.” … or midnight, or whenever curfew was set in your home. If you have or had teenagers, chances are you have used that phrase at least once.
I think about U.S. cow numbers much the same way. Nothing good happens when we have more than 9 million cows. Perhaps that number should be bumped up to 9.3 million cows now.
Effect on prices
Regardless, 2021 provided an excellent example of the impact rising and falling cow numbers can have on milk prices, especially when accompanied by less milk produced per cow as they were this fall.
We have had more than 9 million cows for quite some time now, and milk prices have been unimpressive for most of that time.
If you take a look at the latest graph of cow numbers from the Dairy Markets and Policy website dairymarkets.org (Figure 1.), you can see that during the past three years, we have been above 9.3 million cows.
We were in 2018 as well when there were nearly as many cows in January as there were in January of 2021. Numbers dropped steadily through 2018 until they finally dropped below 9.36 million in November.
The continued lower cow numbers you see in 2019 were a major factor in improving milk prices towards the end of that year which triggered, you guessed it, an increase in cow numbers starting in fall of 2019, peaking in May of 2021 at an astounding 9.5 million cows.
Not surprisingly, 2021 was characterized by poor milk prices. Indemnities were generated in the U.S. Department of Agriculture’s dairy margin coverage program 11 out of 12 months.
Increasing feed prices, production limitations by processors and (finally!) strengthening cull cow prices were some of the factors that caused a dramatic decline in cow numbers starting in June 2021.
From May to November, 115,000 cows left the national herd, playing a major role in the strengthening milk prices. It was about a 1.2% decline, which sounds small, but it had an impact.
The future
What will 2022 hold for cow numbers and milk prices? Right now, milk prices are trading in favorable ranges with the potential to generate returns that will cover the anticipated higher costs of feeding and milking cows.
But, higher milk prices typically trigger increases in cow numbers which eventually triggers a decrease in milk prices and around we go.
Managing milk price risk has become increasingly important through the years with a number of tools now available with varying degrees of complexity.
Enrollment for the dairy margin coverage program offered by USDA’s Farm Service Agency county offices is currently open through Feb. 25. This program offers coverage of a margin between the U.S. all milk price and a representative feed cost based on current feed prices.
Farms make an election during open enrollment that will be set for the calendar year. Cost depends on the margin and percentage of coverage desired. This year, farms also have the opportunity to increase their base amount of milk covered (production history) if their annual production has increased above five million pounds.
Other tools include futures and options contracts, forward pricing, livestock gross margin insurance and dairy revenue protection insurance. Most of these provide the best opportunities when futures are trading at attractive levels as they have been recently.
To make effective decisions with these tools, farms need to know their cost of production and spend time evaluating the opportunities available as markets change.
The door will soon close on enrollment for 2022 dairy margin coverage at your local FSA office. Talk with them as soon as possible. Milk prices will not trade above $20 forever.
To learn more about price management opportunities, check out dairymarkets.org, or join us for an hour Feb. 11 as we discuss the Dairy Margin Coverage Program and the Dairy Revenue Protection Program at 1 p.m. Register for the zoom link at go.osu.edu/2022osudairyprogram
Can’t join us live? Look for the recording at dairy.osu.edu.
