NMPF’s chief lobbyist Paul Bleiberg assesses for listeners of Dairy Radio Now how the election of former president Donald Trump, along with a Senate majority led by the GOP, will impact dairy policy and agricultural issues in Washington and in farm country going forward.
The monthly margin under the Dairy Margin Coverage (DMC) program rose by $1.85/cwt from August’s previous record level to $15.57/cwt, again the highest since margin protection became the basic dairy safety net program in January 2015.
The September all-milk price was $25.50/cwt, $1.90/cwt higher than the month before, while the DMC feed cost formula inched up from August by $0.05/cwt of milk, mostly on offsetting price moves for corn and premium alfalfa.
The end of October dairy and grain futures indicated that the DMC margin would average around $12/cwt for all of calendar year 2024.
By Allison Wilton, Coordinator, Economic Policy & Global Analysis, NMPF
High prices are supposedly the cure for high prices. That may not be the case with beef-on-dairy.
In recent years, the popularity of crossbred calves has grown exponentially as dairy farmers faced tight margins and beef cattle fetched record prices. Margins have improved on the dairy side, but the beef market has shown few signs of cooling down, suggesting a dairy herd boom is unlikely to materialize.
The beef herd is typically cyclical in nature, even as it has steadily shrunk since the 1990s. It’s now the smallest since 1951, leaving little supply cushion when weather or markets cause disruption. Droughts in 2022 and 2023 pushed many ranchers to liquidate herds; heifer and cow cull rates climbed in 2022 (up 4.8% and 10.9%, respectively), sparking the current cycle of high prices. Today, even with sky-high beef prices, calves on the ground at the beginning of 2024 were down 2.7% from the year earlier.
With drought in decline, ranchers may be looking to rebuild their herds. But a beef supply increase will take time. It will even result in higher prices in the short term as producers retain more heifers, which typically take at least two years to calve, and it will take another two years for those calves to be processed. Beef producers also operate under similar incentives as dairy farmers where today’s prices are pushing many to eschew a herd rebuild in favor of sending calves to market as soon as possible. These factors will all constrain the supply of beef animals for the next few years and support elevated prices for dairy-beef crosses.
Is change ahead?
Even as the beef herd is likely to remain constrained for the foreseeable future, two factors could still lower prices.
First, U.S. dairy farmers’ foray into beef crosses could shift supply dynamics in the beef market. U.S. farmers and ranchers purchased 9.4 million units of beef semen in 2023, according to the National Association of Animal Breeders, double as much as just five years ago. Notably, 85% of the beef semen purchased was by dairy farmers. Those calves have only recently made it to feedlots.
Second, several high-profile announcements of new feedlots specifically designed for dairy-beef crosses are likely to further entrench dairy’s investment in beef, permanently expanding the universe of potential beef production. Dairy could possibly cool off the beef market, but dairy’s own limitations to growing its herd naturally limit how many beef calves can come from dairy without seeing the dairy herd itself expand, which then would require switching away from beef — a highly unlikely outcome.
So, the beef herd is constrained for the foreseeable future and beef-on-dairy breeding has yet to provide enough supply to make today’s market more bearish. Demand for U.S. beef is unlikely to slow and remains relatively robust, even as consumers watch their spending. Meanwhile, global and domestic demand for protein, and specifically beef, has strengthened in recent years. U.S. beef exports grew 21% from 2015 to 2023. Tighter beef availability has limited exports so far this year (down 2% year-over-year), but growth remains the trend. Domestic demand has expanded as well, with domestic disappearance of beef 0.6% higher year-over-year in 2023, and per capita beef consumption has been rising as well.
With inflation cooling, consumers are likely to continue adding beef to their grocery carts. Until we see evidence that consumers are willing to switch from burgers to chicken or other proteins consistently, it appears beef prices are likely to remain strong and continue to limit the ability to grow the U.S. dairy herd in a meaningful way.
This column originally appeared in Hoard’s Dairyman Intel on Oct. 17, 2024.
NMPF’s Director of Trade Policy Tony Rice tells Dairy Radio Now listeners how NMPF is working to prevent a loss of milk powder exports to Colombia, which is taking unjustified steps to raise tariffs on U.S. products. Rice also provides an outlook of the potential impact on the dairy sector if a threatened labor strike materializes next week in Eastern and Southern ports.
Stephen Cain, senior director of economic research and analysis for the National Milk Producers Federation, said NMPF is “very pleased with the recommendation that USDA has come up with” for Federal Milk Marketing Order Modernization. “Fundamentally, USDA agreed with our premise and methodology for all the changes we were asking for,” said Cain in an interview with the National Association of Farm Broadcasters.
USDA’s plan for modernizing the Federal Milk Marketing Order system aligns well with the principles outlined in NMPF’s own proposals, NMPF economists Peter Vitaliano and Stephen Cain said in a Dairy Defined Podcast released today. Still, analysis is ongoing, and NMPF will be suggesting improvements during a public comment period that lasts through mid-September.
“It’s important that we have a national system that helps level the playing field across the country,” said Cain, NMPF’s senior director for economic research and analysis. “We do not want regulation to create winners and losers or incentivize actions that distort the marketplace or market dynamics in any way.
More on NMPF’s federal order efforts can be found on nmpf.org. You can find and subscribe to the Dairy Defined podcast on Apple Podcasts and Spotify under the podcast name “Dairy Defined.”
Media outlets may use clips from the podcast on the condition of attribution to the National Milk Producers Federation.
Dairy farmers have reasons to be pleased with the draft proposal for Federal Milk Marketing Order modernization, NMPF Executive Vice President Alan Bjerga said in an interview with Dairy Radio Now. That said, the process isn’t complete. Farmers still have a 60-day comment period and a final producer vote before any final proposal is implemented. NMPF is ready to lead, as it has throughout, Bjerga said.
From NMPF President & CEO Gregg Doud:
“Based on our initial reading, NMPF is heartened that much of what we proposed after more than two years of policy development, and another year of testimony and explanation, is reflected in USDA’s recommended Federal Milk Marketing Order modernization plan.
“Crafting an effective milk-pricing system for farmers is complex and requires a careful balance. USDA’s plan acknowledges that complexity and, while not matching our proposal in every detail, looks largely in keeping with the comprehensive approach painstakingly determined by the work of dairy farmers and their cooperatives over the past three years. We look forward to examining this proposal topic-by-topic, gathering input regarding the various needs of our members nationwide, and adding their insights as this process moves toward a vote of producers.”
