This is an abridged version of the dairy outlook for Q4 2024 from Terrain™, our service for agricultural insights. For the full text of this article, visit terrainag.com.
2024 is shaping up to be a remarkable year for dairy profitability. After a spiritless start, an early-spring surge in prices seemed too good to last. But prices have continued to climb. Making matters better, there’s an abundance of feed helping to improve margins through lower costs, and an ongoing shortage of beef cattle providing strong, nonmilk revenue streams.
Can this strength continue into Q4? Class III and Class IV milk price futures think so. Milk prices are still shy of the peaks seen in 2022, but milk/feed margins are already significantly better.
The foundation of the price strength is a tight supply of raw milk, and that doesn’t appear poised to change soon. Markets are sending clear price signals that more milk is needed, but barriers to expansion that range from biological to economic remain. Replacement inventories are low, and the incentives to breed to beef semen for a quick $1,000 on a day-old calf are still too good to pass up. It will take time to rebuild the herd.
Adding to the milk supply constraints, avian influenza (HPAI) is spreading rapidly through California’s dairies. This could have a temporary but measurable impact on statewide production. With nearly 200 confirmed cases in the U.S. and six months of data where milk production can be compared with the number of cases, a negative correlation is beginning to emerge that suggests states with more cases of HPAI experience lower milk per cow yield (see Chart 1).
August milk production data showed a stronger average U.S. yield than many anticipated, up 8 pounds per cow compared with last year. But the number of herds with confirmed cases of HPAI was the lowest since it began to appear in March. The same will not be true in September.
In the previous Quarterly Outlook, I questioned if the export strength was too good to last and whether we would price ourselves out of global markets. Not yet apparently.
For the full report, including Ben's views on cheese, butter and milk prices, visit TerrainAg.com.
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