Key Takeaways:
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The current margin outlook is significantly better than it was just a few months ago. Substantially lower feed costs have greatly contributed to the positive outlook, with corn and soybean meal futures recently achieving new contract lows. Further, higher cheese prices in recent months, coupled with sustained high butter prices, have driven milk prices higher. Income over feed cost (IOFC) projections are looking positive for farmers.
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Despite higher margins on the horizon, producers still face challenges to expansion. Replacement heifers are expensive, and heifer inventories are low. Extreme heat this summer and HPAI concerns are expected to hinder growth, as well. After 2023’s depressed margins, farmers are eager to pay down debt this year, especially with interest rates being much higher than a few years ago.
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While the margin outlook appears promising, there is no guarantee that the current situation will persist. Cheese prices have been notably volatile over the past 18 months, and this range could widen as markets overcorrect up and down. Moreover, butter prices continue climbing at their steady pace above $3.00/lb., though market fundamentals do not necessarily support it. As the futures market presents favorable margins, we encourage producers to secure coverage when opportunities arise.
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