However, stagnant productivity growth also has played an important role. With cow numbers on the upswing again, a return to more historical milk production per cow growth could quickly change the milk supply situation and provide more downward pressure on milk prices.
USDA is currently projecting milk per cow growth at just 0.4% for 2022, the slowest rate of gain since 2001. This follows relatively weak growth of 0.7% in 2021. The last time we experienced two consecutive years of growth rates less than 1% was 2008 to 2009.
While declines in the rate of productivity growth have been occurring for decades . . . average annual growth in the 1980s was 2.24%, followed by 2.18% in the 1990s, 1.48% in the 2000s, and 1.3% in the 2010s . . . it is rare to string together multiple years of growth below 1%. The most recent monthly observation put June 2022 milk per cow growth at 1%, the highest monthly reading since June 2021.
With dairy cow numbers climbing each of the past five months, the price-friendly combination of fewer cows and weak productivity growth has ended for now. Only time will tell if faster productivity growth accompanies rising cow numbers. If so, milk prices could move down substantially from current levels.
USDA’s July forecast for 2023 pegged annual milk production at 228.3 billion pounds. This forecast results from 9.4 million dairy cows and a milk yield growth of 1.04%. If milk yield growth returned to the 1.63% growth that occurred in 2020, the industry would produce 229.7 billion pounds in 2023 with 9.4 million cows.
As producers contemplate 2023 risk management strategies, it is important to remember that weak milk supplies have added to the favorable 2022 milk prices the industry experienced. It doesn’t take much of a change to tip the delicate balance of milk supply and demand into an excess supply situation, leading to much lower milk prices.
