USDA lowered all dairy product and milk price forecasts for 2021, as well as most dairy product and all milk price forecasts for 2022, from the June forecasts. The changes are due to downward trends in wholesale dairy product prices, stronger international price competition, lower-than-anticipated domestic demand, high stock levels and higher expected imports. The all-milk price forecasts for 2021 and 2022 have been lowered to $18.30 per cwt (down 55 cents) and $18.50 per cwt (down 25 cents), respectively. The milk production forecast for 2021 has decreased as lower expected yield per cow more than offsets higher expected milk cow numbers. But the 2022 milk production projection has been raised due to higher expected cow numbers. Export forecasts have been raised on a skim-solids milk-equivalent basis for both 2021 and 2022. If USDA’s forecast holds, it would mean 2022 U.S. milk production will be 8.4 billion pounds higher than 2020 milk production and 13.2 billion pounds higher than 2019 milk production.
The first quarter of 2021 has seen some normality return to milk prices. Class III, Class IV, and Pennsylvania All Milk price have experienced slow steady increases since January 2021. Current futures for Class III and Class IV also indicate this trend should continue through the first half of 2021, which should strengthen projected All Milk Prices to reach pre-pandemic levels. The markets are concerned about the availability of milk for the rest of 2021 and the first part of 2022 due to high grain prices. Indeed, we have already seen a throttling back of production, possibly due to a reluctance to feed costly grain, or possibly due to supply management programs that are being implemented in 2021, not just in the Northeast, but in some North Central states and Texas.
Milk production in the United States has continued to increase, but at a slower rate than the latter half of 2020. Milk per cow has not increased, which is very unusual, but may be due to higher grain prices. However, the national dairy herd continues to increase and is now at 9.4 million cows. A few years ago, market observers recommended that the national dairy herd could not be over 9.15 million cows if dairy producers wanted sustained higher prices. So, while exports have increased, and a number of government programs are fueling demand for dairy products, the increased number of cows in the national herd casts a bearish light over long-term prices. USDA’s World Agricultural Supply and Demand Estimates (WASDE) forecasts a higher milk production for 2022 than 2021 as expected increases in milk production per cow will offset a small reduction in the dairy cow herd (WASDE, 2021).
Current futures prices of feed and milk would predict a lower income over feed cost. It is important to note the feed costs calculated in this article are based on historical prices through March, and do not yet reflect the dramatic rise in corn prices over the last few months. Margin protection programs or other risk-based programs may help to offset these negative market forces for your farm.