Coming off of a strong performance in the last couple of years, there is significantly more pressure on dairy farm margins this year.

“Feed costs were up the last couple of years, but the … actual dairy market prices were up as well,” said Greg Steele, senior dairy specialist at Compeer Financial.

Looking at the futures for the next few months, milk prices average about $16.50 per hundredweight. There is some basis on top of that of $2 or $3, but cost of production is $19 to $20, he said during a podcast this week.

“So even the best producers are probably breakeven or modest profit at the moment,” he said.

That’s the cycles of dairy, he said.

“The goal for dairy clients is to kind of defend their position and not go backwards and minimize losses and hopefully end up the year with a modest profit,” he said.

USDA’s Economic Research Service forecast an average Class III milk price of $16.70 per hundredweight and an average Class IV milk price of $18.39 per hundredweight for 2023. For 2024, the agency is forecasting an average Class III milk price of $17 per hundredweight and an average Class IV milk price of $17.45 per hundredweight.

USDA Farm Service Agency’s calculated feed costs January through April averaged $15.11 per hundredweight, and margin over feed costs averaged $6.51 per hundredweight.

There are things dairy farmers can do in this cycle to end up with some profit, he said.

“Obviously, manage feed costs the best you can and actually put together budgets and monitor your performance to the budget so you can stay on track for the year. Using risk management tools are really important,” he said.

There are Livestock Gross Management products, Dairy Revenue Protection products and the futures option market, he said.

“All those work effectively, sometimes they work together,” he said.

This year is a good example of why producers should use those options, he said.

“Those who have risk management in place are enjoying a better margin right now because they did that six to nine months ago when the marketing opportunities were much stronger than they are now,” he said.

He also cautions dairy farmers to pay attention to their processor’s base plan, which are very common. Those plans set a quota of milk for producers. If producers sell more than their quota to the processor, there’s a penalty, and it’s generally pretty severe, he said.

For example, if milk pricing is at $20 per hundredweight, the price for over-quota milk would be $10, he said.

Compeer is reinforcing with its dairy clients the importance of consistency, monitoring and continuous improvement, he said.