Tag: dairy economics
Key Dairy Statistics Reveal Continued Production Decline
Dairy Products Stocks Fall As Milk Production Growth Remains Weak
NMPF’s Vitaliano Offers 2024 Dairy Economic Outlook
NMPF’s Vice President of Economic Policy Peter Vitaliano provides Dairy Radio Now listeners a look ahead at what farm-level milk prices will do in 2024. Farmers should benefit from lower feed costs, and with milk production expected to remain stagnant again this year, prices should gradually improve.
Domestic Demand Outpaces Production
Milk Prices Rise as Production Declines and Inventory Shrinks
Doud, Economists Explore Dairy’s Future
The future of U.S. dairy farming is bright as global growth and American capacity for innovation and production combine to create a powerhouse, NMPF incoming president and CEO Gregg Doud and the organization’s economists said in presentations at NMPF’s annual meeting.
“In terms of the world of protein, dairy is a huge part of the future,” said Gregg Doud, who will take over NMPF’s reins on Jan. 1. Doud, a former chief agricultural trade negotiator for the Office of the U.S. Trade Representative, said opportunities are there for U.S. dairy’s taking with robust outreach and appeals to consumers worldwide.
“My message to you today is very simple,” he said. “Let’s go. Let’s get it in gear.”
Dairy producers in the past year have faced operating margins at their lowest since the federal dairy safety net was adopted in its current structure in 2014 as prices plummeted from record highs. In a panel of NMPF economists following Doud’s remarks, forecasts showed an improving price outlook next year, even as inflation continues to pose challenges for consumers.
“We see a road to recovery in 2024,” said Will Loux, head of the joint economics unit serving NMPF and the U.S. Dairy Export Council. “Things aren’t all roses, we still have really significant headwinds on the demand side both here at home and abroad, but we look at the world with a lot of optimism still, especially in the long run.”
Overcoming challenges is what we do
By Randy Mooney, Chairman, NMPF Board of Directors
We’ve had a lot of achievements this year, but it’s also been a challenging time.
A year ago, costs on the farm were extremely high, but we had prices that would cover that. This year, costs are still high, but prices are down. That’s a lot of stress on the farm. And we’re also dealing with problems that we’ve dealt with for years.
There are labor problems; you just can’t find anybody to work. Supply chain disruptions are closer to the farm this year. It’s milk trucks getting milk off the farm; it’s feed trucks bringing feed into the farm. It’s getting simple parts that we took for granted we could get anytime we wanted to. There are geopolitical issues and extreme weather events.
We have challenges all the time, but it just seems like we continue to have more. It seems like we’re in the eye of a storm. But as farmers, we always anticipate a moment before the dawn, before things turn, before things get good again.
One of the things I’ve learned is that a lot of the world is envious of what we have.
They’re envious because we have the Farmers Assuring Responsible Management (FARM) Program, a self-governing program. We have a government that recognizes what we’re doing with sustainability — it’s not being mandated down from the top.
We’re taking care of our own. Today, we produce more milk using fewer and fewer natural resources. We’re revitalizing rural communities. For every dollar generated in dairy farming, it turns over three to seven times in local communities, generating $750 billion in the United States. That‘s pretty impressive.
We’re nourishing families around the world through milk’s unbeatable nutritional value. I’ve dairy farmed for a long time, through good times and bad times, but there’s never been a time that I haven’t laid my head down on my pillow at night and been proud of what I accomplished on my farm. We’re putting the most nourishing, most nutritious product known to man in that milk tank. And when that truck leaves, I know I’ve done something good.
Our ability to evolve how we work and adapt our resiliency is becoming more and more important. This year, we came together as an industry to unite around issues that helped build that resiliency. NMPF worked with member co-ops, farm bureaus, and state dairy organizations to come to consensus on the most substantial issues. Even going back to 2021, when you talk about Federal Milk Marketing Order modernization, we’ve worked hard to get these things done. Nobody knows what the outcome’s going to be, but you telling your story has made a difference.
Beyond that, we’re going to get a farm bill passed — we’re going have an extension. We’ve been working to implement the next version of FARM, FARM 5.0, that goes into effect in July. We also will work on promoting dairy’s sustainable nutrition. Dairy offers the most complete nutritional package available, and what’s amazing is that as we produce more milk, we’ll continue to use fewer natural resources. That’s the definition of sustainable nutrition.
For years, we’ve talked about sustainability in terms of environmental stewardship and how that translates into financial value for farms. Now, the financial values are there. You take solar panels, wind, methane digesters, and a lot of things happen on a farm that’s generating electricity to run your farms and to run your neighbor’s households. We’re there now. What we need is conservation funding in the farm bill through USDA grants through state and federal programs. There’s real money available to help us continue to do that, and we will.
No imitation food from a nut, a bean, or grain can hold a candle to dairy’s nutritional package. We all know that. That’s why it’s important to keep fighting the fight on plant-based alternative labeling. In the guidance that was issued earlier this year, the Food and Drug Administration (FDA) recognized and admitted that plant-based alternatives are nutritionally inferior to real dairy.
Dairy protein plays a critical role in feeding people around the world, and it can’t be replaced by alternatives, including plant-based. Consumers have the right to understand how they’re nourishing their families, and we’re going to continue to advocate for the Dairy PRIDE Act to try to get that passed in Congress.
We’re going to continue to fight for more flavored milk in schools and higher fat levels, especially for those children whose main source of nutrition is through the school milk program. Milk is essential to their diets, and we’re not going to give up that fight. We’re all part of an industry that’s doing remarkable things. We are winning.
This has been adapted from Chairman of the NMPF Board of Directors Randy Mooney’s speech at the National Milk Producers Federation annual meeting in Orlando, Fla., on Nov. 14, 2023. This column originally appeared in Hoard’s Dairyman Intel on Nov. 22, 2023.
Lower Production, Strong Domestic Demand Set the Stage for Milk Price Rebound
Butter Buoys Milk Prices as Inflation Ebbs
Farmer Milk-Price Outlook Challenging
Price and Margin Outlook Challenge Farmers
By Peter Vitaliano, Chief Economist, NMPF
The price and margin outlook continues to challenge the nation’s dairy farmers, with little sign of immediate relief.
CME futures markets, which I use to project prices, indicate a 2023 calendar year U.S. average All-Milk price within a penny or two of $20.45 per hundredweight (cwt.); combined with an annual average Dairy Margin Coverage (DMC) feed cost of $14.20 per cwt., prices and costs at these levels would result in an annual average DMC margin of $6.25.
The USDA’s DMC Decision Tool has a different take on the CME futures, but it too shows roughly the same three average numbers for this year. Meanwhile, USDA’s World Agricultural Supply and Demand Estimates (WASDE) report from June 8 was even more dour, with a $19.95 per cwt. milk price forecast for this year.
The worst of the trough
And those are just the averages — the worst of the trough may be happening right now. Both the CME futures markets and the USDA tool indicate DMC margins well below $5 per cwt. for the three months during the May to August period, which for the first time would trigger Tier 2 payments. Tier 2 coverage at that level costs only a half cent a hundredweight, the same as equivalent Tier 1 coverage. Neither forecast expects the margin to top $9.50 per cwt. before the year is out.
Milk production isn’t usually cited as the root cause of this gloom – but it deserves a closer look. Production growth has been experiencing an unusually short and mild expansion cycle following its extended period last year below year-earlier levels. Production growth maxed out this year at 1.4% in January and was headed down since, hitting just 0.4% over a year ago in April, but annual growth ticked back up to 0.6% in May and has averaged 0.8% for the first five months of 2023.
But assessing the role of milk production with respect to milk prices can’t be done only with reference to historic patterns but rather with respect to current available demand. USDA reports of plentiful supplies for manufacturing, milk selling well below class prices, and busy production schedules suggests that milk production is definitely part of the problem. And production itself needs to be understood, because milk solids production is a more reliable indicator of the aggregate supply of dairy products available in the markets. And that’s up by 1.1% during the first third of the year.
A top-level look at the supply-demand situation for key products and total milk use during the first third of 2023 provides further insights. American cheese production has been an important outlet for recent additional milk production, which isn’t surprising given the recent expansion of U.S. cheese production capacity. Production has grown by 2.6% during the first four months of this year while total commercial use, domestic consumption, and exports are up by 1.6%. Even with these increases, stocks are still below last year’s peak levels.
Total commercial use of other than American-type cheese is up by just 0.8%, as food service use is weak following more than a year of retail price inflation that has forced consumers to tighten up on spending. But production of this type of cheese is down by half a percent. Total fluid milk sales are 2.7% lower than last year, which is in line with long-term trends that were broken in recent years only during the first pandemic year when fluid sales experienced modest growth. Butter consumption suffered last year from its extreme price inflation but has showed improved consumption in recent months. Total exports are on par with last year’s record levels so far in 2023 but have recently slowed in pace. During March and April last year, exports sent 18.4% of domestic milk solids production overseas. This year, this was just 17%.
The current weak price and margin situation isn’t attributable to one single factor; rather, it’s an accumulation of many small weaknesses in many areas, with some further deterioration in just the last couple of months. The futures markets’ projected improvement during the second half of the year will need to be driven by consumers returning to bolder spending behavior as inflation continues to ebb, and for the current low prices to perform their proverbial supply-side function of curing themselves.
This column originally appeared in Hoard’s Dairyman Intel on June 26, 2023.
