Long-Term Dairy Industry Outlook is Bright
2022 for the dairy industry was one matter. For 2023, the year’s trends look to be taking dairy farmers on a completely different path. With milk and dairy production generally on the rise, and with feed costs as high as they are, it looks like the dairy industry could flounder — if it weren’t, however, for some very positive trends in the not-too-distant future.
Table of Contents
- Dairy prices are low – but the cost of feed is high
- Price projections not always accurate – trends can be over- or underestimated
- Tips for months ahead: look at national prices – not local or nearby prices
- Long-term projections show average or better-than-average price margins
- Dairy insurance can fill the gaps until then – strengthen risk management plan
That’s right: the long-term dairy industry outlook is bright, though 2023 is off to an admittedly bumpy start, with the cost/price margins looking as they are. The right kind of dairy insurance could be instrumental for farmers to get through lean times. Let’s take a look at it all: the good news, the bad news, and what farmers can do about all of it.
Dairy prices are low – but the cost of feed is high
Dairy farmers are, of course, nervous about milk prices. The cost of production remains high in the form of feed; and yet, dairy prices are set to a downward trend.
Recent reports reflect that the industry is indeed in a confusing state: buyers are keen to snatch up low-priced milk. But, there doesn’t seem to be a strong demand to be found out there in the market, or to explain trends showing why low-priced milk being bought at the steady rate it is currently.
Industry experts conclude that this may be due to a buildup of overstock supply or storage — or, general overproduction. These same experts also state that milk prices continue to look low for the next few months as this continues to be a trend. That said, global milk prices just recently went up slightly (for wholesale/auction), though by less than 5%. Still, it’s a glimmer of hope that prices could come around again.
Price projections not always accurate – trends can be over- or underestimated
It’s important that dairy farmers manage their expectations — for both good and bad. Hoard’s Dairyman reminds us that commodity prices are famous for over- and underestimating the relationship between costs of production and price, which means that projected prices may not be accurate or follow exactly the anticipated trends.
Costs of production and milk prices are only tools of prediction. It’s always possible the market, owing to other forces, could buck the trends if there are irregularities or unexpected fluctuations with supply or demand.
For example, Dairy Herd Management references the March World Ag Supply and Demand Estimates (WASDE) as predicting higher milk production, thus lower dairy prices all round; meanwhile, Wisconsin State Farmer points out trends in some key states and target months heading from 2022 into 2023 demonstrating a fall in milk production. This could mean a rise in prices either nationally or locally in the far future if these market forces shape or affect other parts of the nation in bigger ways to come.
Tips for months ahead: look at national prices – not local or nearby prices
Producers should take note, however, that local or regional costs and prices — especially the high and low ones, respectively, in negative trends — shouldn’t dictate or deter their plans. Set your sights on the national prices and trends. Take advantage of low feed costs and high dairy product prices in your locality when they do come around.
This advice is directed to farmers who may be experiencing lower-than-average dairy prices and costs of production right in their regions compared to what the national trends or predictions are set. A good example of why: FarmWeekNow reports that dairy organizations currently, and in the past, have been able to sway federal prices and trends through petitioning for allowances and deductions, especially during times like these— whereas regional and local prices differ as they call their own shots.
The takeaway: look to federal price setting and trends as the standard. These can be influenced or changed (and dairy farmers through organizations can get involved in this directly).
Long-term projections show average or better-than-average price margins
As all dairy farmers know too well by now, volatile trends like these are to be expected. Surviving them is all part of the business. You know the drill: tighten the belt, come up with a risk management plan, and wait it out until better days.
According to long-term trends, however, better days for dairy farmers could be coming. Hoard’s Dairyman points out trends showing that the final quarter in late 2023 is predicted to have historically average or even higher than average margins of feed vs. dairy prices, at a time period ahead set around 6 to 12 months from now.
It’s a time for dairy farmers to make temporary decisions that help their operations survive and meet the bottom line, rather than focusing on growth— or, even bowing out or downsizing excessively. Options like dairy insurance and other means can help producers with this approach.
Dairy insurance can fill the gaps until then – strengthen risk management plan
All market experts and trends agree: one of the best tools for dairy farmers to strap down during market volatility is to invest in dairy insurance and specifically Dairy Revenue Protection (DRP) coverage. These policies can be established following and according to set federal prices; if prices (and rising feed costs) tamper with the farmer’s bottom line, they can still pull in a substantial amount of survivable income until the market forces fare for the better.
For some operations, a combination of DRP and herd culling can be an effective strategy, especially if trends show overproduction and oversupply. That said, a DRP policy can help prevent farmers from taking drastic downsizing measures (such as culling) when it’s possible that the trends could turn around for the better in just a matter of months, or within the year.
Strap in, farmers: yes, it will be a bumpy ride, but projections suggest it’s towards better days. In the interim, coming up with an airtight risk management plan that includes the right type of dairy insurance — Dairy Revenue Protection and other options — will help the ride be a more enjoyable and fruitful one.