High Prices Cure High Prices

January 25, 2013 — USDA released its monthly Milk Production report this week, indicating a strong December with higher cow numbers and more milk per cow pushed 2012 milk production to a record high. DairyBusiness Update’s Dave Natzke reported on Friday’s DairyLine Radio broadcast:

The old saying goes that high prices cure high prices, and after declining cow numbers and less milk production helped raise milk prices last fall, U.S. dairy farmers added more cows and boosted milk production to close out the year, pushing 2012 milk production to a record-high of 200 billion pounds.

Based on December’s estimates, monthly milk production posted its largest year-over-year percentage gain since May, up about 1.6% from December 2011. That means total 2012 milk production will be up abut 2.1% from last year. Cow numbers, which had been on a 6-month decline since peaking last April, increased for a second consecutive month in December, ending 2012 averaging about 37,000 more cows than a year earlier.

The trend isn’t nationwide, Bill, and the major factor is probably feed costs. December production continued to decline in much of the West and Southwest, where dairy farmers tend to buy more feed. Meanwhile, in the Midwest and Northeast, where farmers grow more of their own feed, milk production showed the biggest gains.

With more cows and milk production causing a weakness in 2013 first-quarter milk prices, dairy farmers may be keeping an eye on Washington to see what economic safety nets are in place. While Congress has yet to provide a timetable for 2013 Farm Bill discussions, USDA’s Farm Service Agency announced some details of the extended Milk Income Loss Contract (MILC) program. According to FSA, dairy farmers will not have to re-enroll in the program, which was extended as part of the “fiscal cliff” negotiations. However, FSA has not announced procedures for farmers who produce more milk than MILC payment caps allow.

One other option remains. The next sales period for the USDA Risk Management Agency’s Livestock Gross Margin-Dairy, or LGM-Dairy margin insurance policies, begins Jan. 25. Current insurable income margins are more than historical averages, and dairy farmers interested in coverage should contact their LGM-Dairy policy insurance agent.

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