Overview & Key Points
The margin outlook has deteriorated versus last month, driven by weaker milk prices.
Declines in cheese and butter values on the CME spot market have pressured Class III and IV milk futures lower, with nearby Class III contracts experiencing the sharpest declines. December 2024, January 2025, and February 2025 Class III futures have each fallen more than $1/cwt since last month.
Lower milk prices have driven margins down $0.52/cwt for Q4 2024 and $0.94/cwt for Q1 2025. Despite the declines, Q4 2024 margins are still expected to be the highest in the past ten years, while Q1 2025 ranks in the 94th percentile.
Change in CME Futures from Last Month
Projected Margins by Quarter
This report is intended to be a simple barometer of the margin potential for dairy farms in the United States. This is not necessarily an accurate measure of a specific farm’s profitability, as margins can vary greatly from farm to farm. If you are interested in customizing this model to your operation, please email us at info@highgrounddairy.com to learn more.
Forward milk price projections are based on current FMMO pricing. A negative change in feed cost vs. prior week means feed prices decreased. Percentiles compare the listed price to quarters with the previous ten years of data. Higher percentiles represent greater historical benefits to producers.
Assumptions: Quarterly margins are determined using current CME futures prices for dairy products, corn, and soybean meal. Milk prices are derived from CME dairy product futures and adjusted for component levels and class utilization. Assumed component levels by quarter are: 4.30% BF / 3.40% PRO in Q1 & Q4 and 4.00% BF / 3.20% PRO in Q2 & Q3. Component estimates are based on recent data available for milk composition levels across the US. Class utilization is set to 55% Class III / 45% Class IV. Feed costs are calculated using CME corn and soybean meal futures (“correlated feeds”) and a fixed value for non-correlated feeds at $3.00/cwt. Correlated feed costs are based on the assumption that 60 lbs of corn (or its equivalents) and 14.7 lbs of soybean meal (or its equivalents) are required to produce 100 lbs of milk. A basis adjustment of +$1.00/bushel is added to corn futures, and no basis is added to soybean meal futures. The remaining adjustments are fixed at: -$8.00/cwt for total non-feed costs; -$1.30/cwt for milk check premiums/deductions; and +$1.50 for non-milk revenue.
Disclaimer: HighGround Insurance Group (HGIG) is an agency affiliated with HighGround Dairy (HGD). HGIG is a licensed insurance agency in many US states. HighGround Dairy is a division of HighGround Trading (HGT), an Introducing Broker (IB) registered under United States Laws. Nothing contained herein shall be construed as a recommendation to buy or sell commodity futures or options on futures. This communication is intended for the sole use of the intended recipient. Futures and options trading involves substantial risk and is not suitable for all investors.
