Dairy Outlook: August 2021 - Penn State Extension
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Dairy Outlook: August 2021
Milk prices remain weak as feed costs are 15%
above the previous 12 month average, despite
recent commodity declines. Programs like Dairy
Margin Coverage offer potential relief to tight
margins.
*Predicted values based on Class III and Class IV futures
regression (Goodling, 2021).
Feed prices have taken a more dramatic position in the past
few months. Led by highs in corn and soybeans, 12 month
average feed costs for the U.S. are 9.4% higher and
Pennsylvania 15.6% higher than the previous 12 month
average (Table 1). In the last three months, feed costs have
come down slightly, but still remain at highs reached over a
Robert Goodling, Penn State
decade ago. Farms with adequate home raised feed
inventories are better positioned to address the resulting tight
Slow Milk Price Growth Meets Rapid Feed margins than those reliant on a larger quantity of purchased
Cost Expansion feed.
Summer prices have been challenging for Class III prices, but
very tumultuous when it comes to feed. Despite the short A Tale of 3 Risk Management Levels
lived spike in Class III in May, Class III and IV have been Low milk price and/or high feed commodity prices leads to
normalizing and slowly growing for all of 2021 (Figure 1). increased discussion around risk management strategies. There
Current futures suggest that Class III will potentially grow to have been various risk management strategies available to
$18/cwt by the end of the year, while Class IV looks stable producers over the years, and a popular current option is Dairy
around $16/cwt. Based on a regression of Class III and Class Margin Coverage (DMC) established in the 2018 Farm
IV, the predicted Pennsylvania all milk price will grow from Bill. The DMC is two and a half years into its program, and its
around $18.75/cwt to potentially $20/cwt for the second half utilization by producers has varied greatly by premium level
of 2021. chosen, percent production enrolled, etc. Given the current
Figure 1: Twenty-four month Actual and Predicted* Class margin environment, a comparison of three premium levels
III, Class IV, and Pennsylvania All Milk Price ($/cwt) offered illustrates an interesting picture. Let's take an example
dairy interested in covering 90% of its 5,000,0000 lbs. milk
eligible for DMC. How would this dairy's net indemnities
compare for 2019-2021 at three coverage levels: $4.00, $6.50,
and $9.50? Net indemnity means the total payouts less any
fees and premiums. Figure 2 shows what the annual net
indemnities per cwt were at each level as well as the monthly
Milk and Feed Cost Margin USDA calculates for payment
determination.
Figure 2: USDA Dairy Margin Coverage Net Indemnities for
2019-2021 at $4, $6.50, and $9.50 premium levels
¹Based on corn, alfalfa hay, and soybean meal equivalents to
produce 75 lbs. of milk (Bailey & Ishler, 2007) ²The 3 year
average actual IOFC breakeven in Pennsylvania from
2015-2017 was $9.00 ± $1.67 ($/milk cow/day) (Beck, Ishler,
Goodling, 2018).
USDA Farm Service Agency, 2021. "Dairy Margin Coverage
Program".
Table 2: 12 month Pennsylvania and U.S. All Milk Price,
Feed Cost, Milk Margin ($/cwt for lactating cows)
It should be noted 2021 only contains the first six months and
the amount of milk covered and the amount of premium are
adjusted to reflect such. The minimum level of $4.00 has yet
to result in an indemnity payment since 2019, and with a
minimum $100 fee, there is hardly any impact on an annual
basis for the level of production. At $6.50 coverage, it has
been a mixed performance. In 2019, it did not trigger any
payments, but did have a $0.07/cwt cost. Two months
triggered payments in 2020, resulting in a net indemnity of
$0.06/cwt, and currently 2021 is tracking to be somewhere in
between. The top level coverage, $9.50, definitely has been a
positive since DMC was offered. It has resulted in a net
indemnity around $0.50/cwt in 2019 and 2020, and currently
is poised to return nearly $2.80/cwt if margins remain in their
sub $7.00 range for the remainder of 2021. Although this may
not offset all the rising costs producers are facing, having ¹Based on corn, alfalfa hay, and soybean meal equivalents to
these additional funds for those that elected higher levels of produce 75 lbs. of milk (Bailey & Ishler, 2007) ²The 3 year
coverage will help to lessen the impact on this year's financial average actual Milk Margin breakeven in Pennsylvania from
position. As with any risk management strategy, every 2015-2017 was $12.33 ± $2.29 ($/cwt) (Beck, Ishler, Goodling,
operation is unique, and so decisions should be based on that 2018).
operation's financial position, estimated production, and long
term objectives. Enrollment for DMC occurs in the fall prior Figure 3: Twelve month Pennsylvania Milk Income and
to the coverage year, so producers elected coverage for 2021 Income Over Feed Cost ($/milk cow/day)
back in October thru December 2020. No official data has
been announced for the 2022 enrollment period, but most
likely will occur in the October to December 2021 time frame.
Income Over Feed Cost, Margin, and All
Milk Price
Table 1: 12 month Pennsylvania and U.S. All Milk Income,
Feed Cost, Income over Feed Cost ($/milk cow/day)
Page 2 Dairy Outlook: August 2021
To look at feed costs and estimated income over
feed costs at varying production levels by zip
code, check out the Penn State Extension Dairy
Team's DairyCents or DairyCents Pro apps
today.
Data sources for price data
• All Milk Price: Pennsylvania and U.S. All Milk Price
(USDA National Ag Statistics Service, 2021)
• Current Class III and Class IV Price 8/13/2021 and
²The 3 year average actual IOFC breakeven in Pennsylvania 8/16-8/19/2021 (USDA Ag Marketing Services, 2021)
from 2015-2017 was $9.00 ± $1.67 ($/milk cow/day) (Beck,
• Predicted Class III, Class IV Price (CME Group, 2021)
Ishler, Goodling, 2018).
• Alfalfa Hay: Pennsylvania and U.S. monthly Alfalfa Hay
Table 3: Twenty-four month Actual and Predicted* Class Price (USDA National Ag Statistics Service, 2021)
III, Class IV, and Pennsylvania All Milk Price ($/cwt) • Corn Grain: Pennsylvania and U.S. monthly Corn Grain
Price (USDA National Ag Statistics Service, 2021)
Aug-20 $19.77 $12.53 $18.10 • Soybean Meal: Feed Price List (Ishler, 2021) and average
Sep-20 $16.43 $12.75 $18.00 of Decatur, Illinois Rail and Truck Soybean Meal, High
Protein prices, National Feedstuffs (USDA Ag Marketing
Oct-20 $21.61 $13.47 $18.80 Services, 2021)
Nov-20 $23.34 $13.30 $20.20
References
Dec-20 $15.72 $13.36 $18.80
Bailey, K. and V. Ishler. " Dairy Risk-Management Education:
Jan-21 $16.04 $13.75 $17.30 Tracking Milk Prices and Feed Costs ". Penn State Extension.
Feb-21 $15.75 $13.19 $17.40 Accessed 9/20/2017.
Mar-21 $16.15 $14.18 $17.90 Beck, T.J., Ishler, V.A., & Goodling, R. C. 2018. "Dairy
Enterprise Crops to Cow to Cash Project," the Pennsylvania
Apr-21 $17.67 $15.42 $18.40 State University. Unpublished raw data.
May-21 $18.96 $16.16 $19.30 CME Group. " Class III Milk Futures Settlements ". Accessed
Jun-21 $17.21 $16.35 $19.10 8/13/2021.
Jul-21 $16.49 $16.00 $19.01 CME Group. " Class IV Milk Futures Settlements ". Accessed
8/13/2021.
Aug-21 $16.15 $15.75 $18.73
Ishler, V. " DairyCents Mobile App ". Penn State Extension.
Sep-21 $17.35 $15.93 $19.33 #App-1010.
Oct-21 $17.34 $16.04 $20.20 Ishler, V. " DairyCents Pro Mobile App ". Penn State
Nov-21 $17.66 $16.12 $20.37 Extension. #App-1009.
Dec-21 $17.63 $16.22 $20.42 Ishler, V. "Feed Price List". Personal Communication.
Accessed 8/13/2021.
Jan-22 $17.40 $16.34 $20.18
Microsoft 2016. " Forecast.ets function ", Office Help
Feb-22 $17.40 $16.53 $20.28 Website.
Mar-22 $17.42 $16.67 $20.37 USDA Ag Marketing Services, 2021. Milk Marketing Order
Apr-22 $17.48 $16.85 $19.78 Statistics. Accessed 8/13/2021.
May-22 $17.48 $16.89 $19.80 USDA Ag Marketing Services, 2021. " National Feedstuffs:
Soybean Meal, High Protein ". Summary of USDA AMS
Jun-22 $17.48 $16.93 $19.83 Grain Reports. Accessed 8/13/2021.
Jul-22 $17.52 $17.04 $20.02 USDA Economic Research Service, 2021. " Dairy Data ".
Commercial disappearance of milk in all products. Accessed
* Italicized predicted values based on Class III and Class IV 8/13/2021.
futures regression (Beck, Ishler, and Goodling 2018; Gould,
2019). USDA Economic Research Service, 2021. " Milk Production
". Accessed 8/13/2021.
Page 3 Dairy Outlook: August 2021
USDA Farm Service Agency, 2021. " Dairy Margin Coverage
Program ". Accessed 8/19/2021.
USDA National Ag Statistics Service, 2021. Agricultural
Prices, Quick Stats version 2.0. Accessed 8/13/2021.
Authors
Robert C. Goodling, Jr.
Extension Associate, Dairy
rcg133@psu.edu
814-863-3663
David L. Swartz
Assistant Director, Animal Systems Programs
dls19@psu.edu
717-385-5380
Claudia Schmidt, Ph.D.
Assistant Professor of Marketing and Local/Regional Food Systems
cschmidt@psu.edu
814-863-8633
Virginia A. Ishler
Extension Dairy Specialist
vishler@psu.edu
Tim Beck
Extension Educator
tjb12@psu.edu
717-870-7702
Penn State College of Agricultural Sciences research and extension programs
are funded in part by Pennsylvania counties, the Commonwealth of
Pennsylvania, and the U.S. Department of Agriculture.
Where trade names appear, no discrimination is intended, and no endorsement
by Penn State Extension is implied.
This publication is available in alternative media on request.
Penn State is an equal opportunity, affirmative action employer, and is
committed to providing employment opportunities to all qualified applicants
without regard to race, color, religion, age, sex, sexual orientation, gender
identity, national origin, disability, or protected veteran status.
This article, including its text, graphics, and images ("Content"), is for
educational purposes only; it is not intended to be a substitute for veterinary
medical advice, diagnosis, or treatment. Always seek the advice of a licensed
doctor of veterinary medicine or other licensed or certified veterinary medical
professional with any questions you may have regarding a veterinary medical
condition or symptom.
© The Pennsylvania State University 2021
Code: ART-7255
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