Milk Prices

While the market outlook for U.S. dairy prices looks promising, American Farm Bureau Chief Economist Roger Cryan says higher milk prices won’t look as good as they have in the past, as rising costs and difficulties in processing and marketing continue through the new year.

He credits the pandemic-driven market forces in 2020 and 2021, evolving product demand, supply chain challenges and the unknowns of COVID as affecting dairy farm profitability in 2022.

Because feed costs can represent 50 percent of the total cost to produce milk, dairy farmers are trying to reduce feed costs. However, with the wrong feed choices, farmers could save 10 cents a day while losing 50 cents of income.

The average cost to produce milk has climbed substantially so far this year. While the Federal Reserve debates inflation, it’s clear it has already arrived at dairy farms.

Feed represents more than half of a typical dairy’s operating costs. When milk prices decline, cutting feed costs is often a tempting first strategy for producers and their nutrition consultants. However, when it comes to nutrition management, short-term cost cutting may lead to long-term and expensive consequences.

An analysis of recent trends in dairy consumption suggests increased use of butter and other higher-fat dairy products has added $2.2 billion to dairy farmers’ milk checks, say officials with Dairy Management Inc. (DMI) and the National Milk Producers Federation (NMPF).

The pricing signal has now changed. Protein is no longer the most valuable milk component; butterfat is now milk’s most valuable component. Skim and the components in the skim, protein and other solids, are now the minority value.

Even though U.S. milk production surged 2.5% in October, shrinking production in other regions of the world and increasing global demand mean milk prices likely will improve significantly in 2017. USDA is projecting about $1/cwt increase in the All-Milk Price in 2017.