Dairy and crop outlook for 2021 shows feed costs will remain volatile

Grace Connatser
Wisconsin State Farmer
With very tight feed supplies until this year's harvest season, feed costs will continue to remain high and unstable as they have been throughout the year so far.

The latest dairy and crop outlooks from the University of Wisconsin-Madison say to expect feed costs to remain high and unstable, and expect some drought conditions to migrate to the Midwest from the West Coast.

Katelyn McCullock, director and senior agricultural economist for Livestock Marketing Information Center in Denver, Colo., said with very tight feed supplies until this year's harvest season, feed costs will continue to remain high and unstable as they have been throughout the year so far. She said some beef cattle herds have already seen liquidation due to high feed costs.

However, Wisconsin has also upped its alfalfa production by 27% compared to last year (though with significantly more alfalfa exports), with prices at a slightly high but steady $180-185/ton.

Hay stocks will depend mostly on regional drought conditions, McCullock said, adding that Wisconsin stocks are up despite an overall national decline. While Wisconsin is not expected to be a severe drought state, other states like California, Texas and the Dakotas are experiencing extreme conditions, making hay production much harder. Some drought is expected in the upper Midwest, potentially including small areas in Wisconsin.

"It's not to say that we are going to experience a 2011-2012 drought situation again, it's not imminent, but it's something that we're watching fairly carefully," McCullock said. "If this condition continues to deteriorate, specifically in corn and soybean-growing regions, that could be very problematic. You probably have not seen the highs for those crops yet."

After last August's derecho in Iowa that flattened corn fields, the corn and soybean markets seem to have recovered and are "back on track," McCullock said, though drought conditions may hamper future recovery. Plus, huge export demand from China and deteriorating crops on South American farms mean tighter supplies in the US.

Despite drought conditions, McCullock expects the nation to achieve higher or similar yield compared to last year. Following this, China has been making record-breaking purchases for corn and soybeans, which has had some effect on market prices. Total US exports are predicted to hit just under 2.5 billion bushels.

Katelyn McCullock

"We're in this funny time of year right now where crop planting has gone better than normal in a lot of areas (and) a lot of states are ahead of schedule. And yet, our duty-free report, where we really know how many acres are planted, is still a month and a half out," McCullock said. "So the markets are going to be looking at weather, they're going to be fairly reactive until they have a better idea of what was actually in the ground."

McCullock said June's acreage reports will prove "critical" to the market and will likely determine price trends for months in the future due to high prices for virtually all commodities and livestock supplies being very tight. She also said to expect volatility throughout the year as markets continue to settle.

For dairy, the all-milk price has held strong compared to last year, hitting above the five-year average, but the milk-feed price ratio has not been this low since the dairy recession in 2008 and 2009. Plus, the dairy industry will need to quickly catch up to all sorts of demand because of lifted restrictions on restaurants and other food service institutions.

"One of the things that we've had to contend with is the food service sector opening up and wildly different demand levers being pulled at the same time," McCullock said. "When you knocked out food service (last year) it saw extreme differences in what was demanded for butter and cheese. And in a lot of cases, those products weren't set up so that they could then just immediately switch channels and move to the retail side."

McCullock added that dry milk prices are holding their own, helping to stabilize and bring up other milk prices. China is also making huge dairy purchases as they've now increased their purchases more than 1,000% from last year in the second quarter. Butter and oil are seeing better demand, especially from Canada and Saudi Arabia, which has increased their purchases 600%. Low predicted increases in milk production will overall help keep prices stable, she said.

Kevin Jarek and Scott Reuss, extension agents for Outagamie and Marinette counties respectively, both report good planting conditions so far this season with good amounts of moisture in the fields. However, Jarek said drought conditions in nearby states concern him, and farmers in the southern part of the state are expecting some mild to moderate drought conditions.

"If you look at Iowa in the northwest, we've got a severe drought there, and look at the state of Michigan. We're kind of boxed in – we have drought to the west of us, we have drought to the east of us," Jarek said. "Then if we look out even further, August, September, October ... our precipitation has gone away. An even greater concern would be the left-hand side (of the state) where you can see the temperature shift in Wisconsin. It is expected that perhaps some of those conditions out west are going to move east."

As the last of the winter forages are harvested, Jarek said winter wheat and other crops performed well. He added that spring corn silage is mostly planted in his county and initial emergence looks promising. However, that silage is needed badly due to very low supply across the country, which will last until harvest season.

Because of low corn silage and hay supplies, Jarek said farmers are looking for alternatives to corn, hay and alfalfa, especially in the form of cover crops. Some popular choices have been ryegrass mix, red clover and berseem clover. Overall, yield seems to be a little low across the board, despite high quality, which lends even more urgency to feed stocks.

Kevin Jarek

"People really need to sit down and take stock of where their feed is so that this fall, when harvest is complete, they're not surprised," Jarek said. "Alfalfa is not going to be a good strategy, especially the fact that hay jumped from $205/ton to $230/ton for high quality large square bales, and that affects pricing."

Reuss said Marinette County farmers have enjoyed good planting conditions due to some of the lowest dryness levels in years, as well as good temperatures. He said the perennial forage harvest will begin very soon as winter forages finish up. He reported that some farmers are very low on haylage stocks, with some comfortable until next year's harvest and others needing to get haylage in and out of the ground as soon as possible.

"We've got a lot of variability – some farms are in very good forage supply shape and others are still struggling," Reuss said. "A lot of it really did get affected by how much overwintering damage they had the last couple of years. And then because of the extreme moisture in 2018 and 2019 in a lot of areas, we had a lot of farms who just couldn't get stuff off the field, and if they did, it was very low quality."