Commodity Update: Dairy Outlook 2022 
GreenStone Dairy Update 2022


After many years of back-to-back low milk prices, U.S. producers are in a period of extraordinarily high milk prices.  

April’s all-milk price of $27.10 per hundredweight (cwt) broke the monthly record of $25.90 set a month earlier, and economists think the high prices are expected to hold out for much of 2022 before tapering off in 2023. 

“The break-even cost of production has been going up, but it’s not going up as fast as the milk prices right now,” says Jim Byars, GreenStone Farm Credit Services vice president of agribusiness lending focused on the dairy industry. “There’s great opportunity for profitability in the dairy industry this year and that really started in December of last year. It looks like it's going to hold on for most of this year. Sometimes the second half of the year doesn't finish as strong as what the outlook was, but right now, all the players seem to think these higher prices will hold together for ’22 and well into to ’23.” 

According to the latest USDA Market Outlook, the all-milk price forecast for 2022 has been adjusted to $25.75 – five cents lower than last month’s forecast. The all-milk price forecast for 2023 is $23.55. For 2022, wholesale price forecasts for all cheddar cheese and butter were adjusted up, while prices for dry whey and nonfat dry milk (NDM) were adjusted down. 

In a recent Professional Dairy Producer Dairy Signal webinar, Ben Buckner said the recent price bump is attributed, in part, to a reduction in milk production across the globe. Buckner, who is a dairy analyst for AgResource Co., said decreased production can be linked to high feed prices, declining dairy cow numbers, weather issues and a shortage of labor. 


Byars agrees, “Every major player in dairy is decreasing production – the E.U., New Zealand, Australia and the U.S.” 

However, the U.S. production is starting to turn around, Buckner said. The U.S. cow herd is once again expanding, slowly, he noted. 

Growth is very calculated, as the cost for heifers, building materials, labor, and the overall cost of the feed, fertilizer and chemicals are all higher – some almost triple what they were a couple of years ago.  

“U.S. growers are very resilient,” Byars says. “But, in places like the E.U., New Zealand and Australia, they aren’t as resilient and contraction in their dairy industry is more of a long-term phenomenon. They have all the higher costs we have, but with the addition of environmental regulation that's really forcing their dairy industry to shrink.” 

The U.S. is a major exporter of milk products and sought for its quality and affordability.  However, “…as our prices go up, it will eventually cut into people's ability to buy milk products,” Byars says. 


How high will inputs go? 
Fertilizer prices were increasing before the Russian invasion of Ukraine because of the price spike in natural gas last year – nitrogen-based fertilizers like urea and ammonium nitrate are produced from natural gas. The invasion only exasperated the issue. Prices for potash, which is almost entirely imported into the U.S., have more than doubled because of a mine closing in Canada and reduced exports from mainly Belarus and Russia.  

The outlook for the war in Ukraine is gravely uncertain, as well as its impact on food production. “Perhaps we are just scratching the surface of the problems this is going to create for us and for everyone,” Byars says. “We're going to have more volatility. It makes risk management so much more important. DRP is one way producers can at least cover their breakeven while leaving their upside open.” 

In 2020, the producer break-even cost of production was around $16, Byars says, depending on the size and scope of the operation. In 2021 it jumped to about the $17.50 range. “In 2022 it’s higher, maybe a couple dollars higher – say $19.50,” he adds. “With today’s all-milk price of $27, there’s a lot of room for profit. These milk prices will moderate in 2023. The challenge will be to not let next year’s profits get eaten up by higher costs.” 

The costs of the feed pile, including diesel and labor, don’t get realized by a dairy until the following year. “The cost of the feed pile right now was set last year,” Byars says. “The cost of this year's crop will be next year's feed – there’s always a year delay.” 

In the last five years, there has been a loss of equity in the dairy industry, he adds, but it's a wide range. “There are operators who lost $1,000 a cow over the last five years, some that lost $100 a cow or broke even,” he explains. “There are farms that made money and farms that didn't.” 

One other area of concern is rising interest rates. “Interest expense is rolled into everything,” Byars says. “We've already seen interest rates go up by 50%, which is something new for a lot of young farmers. During my entire 36-year career, interest rates have been in a downtrend trend, with a few ups and downs in there.  Younger farmers have never been in an up-trending rate market and may have to come to grips with a new reality that 4.5% money is gone and it looks more like 6.5% variable-rate money for everything you do.” 



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