Tag: dairy economics

Price and Margin Outlook Challenge Farmers

Posted on by Alan Bjerga

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.

Falling Prices, Rising Opportunities on Tap for 2023

Posted on by Theresa Sweeney

Record milk prices seen in 2022 likely won’t repeat themselves, as production increases and consumers grapple with an economic slowdown, according to members of the NMPF and U.S. Dairy Export Council’s joint economics unit, in a Dairy Defined Podcast released today. But exports are on track to increase, and demand will likely be resilient as dairy remains must-have for buyers.

“Consumers around the world still gravitate towards dairy, even when they’re experiencing tighter economic situations,” said Will Loux, head of the team Vice President for Global Economic Affairs with NMPF and USDEC. “They ultimately view dairy as an essential item and will continue to consume it.”

Loux discusses the global and domestic dairy outlook with NMPF’s Chief Economist, Peter Vitaliano; Economic Research and Analysis Director, Stephen Cain; and the joint economic team’s newest member, Economic Policy and Global Analysis Coordinator, Allison Wilton. The full podcast is here. You can also find the podcast on Apple Podcasts, Spotify and Google Podcasts. Broadcast outlets may use the MP3 file below. Please attribute information to NMPF.

U.S. Monthly Average Milk Price Sets Record High in March

Posted on by Theresa Sweeney

The highest-ever monthly U.S. average all-milk price was reported by USDA’s National Agricultural Statistics Service (NASS) for March, at $25.90/cwt. This was twenty cents per cwt higher than the previous record, in September 2014, the only year – until now – in which the monthly all-milk price topped $25.00/cwt.

The futures-based outlook for the milk price for all of calendar year 2022 halted its steady ascent since last summer during the fourth week of March, but it hasn’t dropped below $26.00/cwt since then, indicating there may be more monthly records ahead for this key measure of U.S. dairy farmers’ gross incomes from milk sales.

USDA has reported the March margin under the Dairy Margin Coverage program to be $11.55/cwt. Since March 2021, the DMC feed cost has increased by $3.22/cwt, while the all-milk price has risen by $8.50/cwt over the same period. The DMC Decision Tool on the USDA Farm Service Agency DMC website predicts that DMC margin will remain above the $9.50/cwt maximum coverage level under the program for the remainder of 2022.

Surging Milk Price Boosts DMC Margin

Posted on by Theresa Sweeney

The January margin under the Dairy Margin Coverage (DMC) program rose just over $2/cwt to $11.54/cwt, fueled by the third-highest ever jump in the U.S. average all-milk price.

A spectacular $2.40 per hundredweight one-month jump in the U.S. average all-milk price in January overpowered a DMC feed-cost calculation that rose only 39 cents in the same period. The monthly milk price gain has only been surpassed in April 2004, when it rose by $2.60/cwt, and June 2020, when it leaped by $4.50 /cwt as part of a price sharp recovery from the onset of the COVID-19 pandemic. That jump returned the price to barely higher than it had been just three months earlier; by contrast, the recent spike capped a series of gains that have pushed the price up by $6.50/cwt over five months.

January’s all-milk price has only been surpassed in five months, all in 2014. Late February dairy and grain futures indicate that feed costs will tend to track milk prices over the next several months to keep the margin from rising much above its January level.

As of February 28, the 2021 DMC program has seen record payments of nearly $1.2 billion to 18,952 enrolled operations, an average of $62,773 per enrolled operation. NMPF urges all dairy farmers who haven’t yet joined DMC to do so. The deadline to sign up for the 2022 DMC program has been extended to March 25. NMPF has a page of resources here for those who may have questions about the program.