Futures prices for milk and feed are looking favorable for dairy producers with the fourth quarter of 2024 on the horizon. At the time of this report, the all-milk price forecast was at a staggering $25.06 per hundredweight (cwt) for September and feed costs were at $10.27 per cwt, the lowest since 2020.
“The margin outlook for producers looks fantastic,” says Alex Gambonini of HighGround Dairy.
Yet uncertainty is certain, and producers should consider risk management strategies to secure their profitability in September.
Here’s Progressive Dairy’s look ahead at important dates, reports and advice affecting risk management decisions, as well as other information impacting the milk check next month.
Dairy Margin Coverage (DMC) program
The July 2024 DMC margin and indemnity payment will be announced Aug. 30, with the August 2024 DMC margin calculated Sept. 27.
With falling feed costs and strengthening milk prices, June’s income over feed cost (IOFC) was the highest in two years at $11.66 per cwt. The last time producers saw a margin to that degree was in June 2022.
“With the market expecting solid yields in the fields, feed costs are projected to be the lowest since 2020. Combined with strong butter and cheese prices, the margin between milk and feed looks very impressive, especially to finish 2024,” Gambonini says. “Income over feed costs for the fourth quarter of 2024, based on futures prices, is projected to be among the highest in the past decade.”
As of Aug. 27, the July 2024 margin forecast was at $12.41 per cwt with a yearly average projected at $12.15 per cwt. According to National Milk Producers Federation’s latest Dairy Market Report, if the higher IOFC trend continues, this would be the highest average margin for a calendar year under the DMC program and the highest since the program’s initial inception in 2015.
Dairy Revenue Protection (Dairy-RP)
Dairy producers managing risk through Dairy-RP are eligible to cover revenue quarterly, up to five nearby quarters. In September, Dairy-RP coverage is available for the fourth quarter of 2024 (October through December) through the fourth quarter of 2025. This year’s fourth-quarter enrollment ends Sept. 15.
The market changes daily and Dairy-RP endorsements must be purchased between the Chicago Mercantile Exchange (CME) market closing and the next CME opening. Dairy-RP is not available on days when applicable futures contracts move limit-up or limit-down, or on days when CME trading is closed due to holidays (see Calendar).
Also, Dairy-RP coverage cannot be purchased on days when major USDA dairy reports that could impact markets are released. This includes Milk Production, Cold Storage and Dairy Production reports.
An improved RMA website allows for a more user-friendly experience to access needed information related to Dairy-RP, Livestock Gross Margin for Dairy (LGM-Dairy) and other programs.
Livestock Gross Margin for Dairy (LGM-Dairy)
LGM-Dairy is another subsidized margin insurance program administered by the USDA Risk Management Agency.
This insurance program provides a protection when feed costs rise or milk prices drop, and can be tailored to any size farm. The program uses futures prices for corn, soybean meal and milk to determine the expected gross margin and the actual gross margin. LGM-Dairy is similar to buying both a call option to limit higher feed costs and a put option to set a floor on milk prices.
Coverage can be purchased on expected milk marketing over a rolling 11-month insurance period. So the coverage period during September includes the months of October 2024 through August 2025.
The sales period for the LGM-Dairy program are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report. Premium payments are due at the end of the insurance period.
Production and price outlooks
- The number of dairy cull cows marketed through U.S. slaughter plants in July 2024 was estimated at 225,900 – up from June but down from a year prior and the lowest July total since 2017.
- U.S. milk production fell about 0.4% compared to the same month last year, according to the USDA’s preliminary July Milk Production report released Aug. 21.
- The Federal Milk Marketing Order (FMMO) advanced Class I base price continues to inch higher with September’s price at $21.60 per cwt, up 28 cents from August.
- Individual FMMO uniform milk prices rose in 10 of 11 orders in July, in some areas again hitting the highest averages since the end of 2022.
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