Writing in a recent Market Intel report, Munch said any impending recession could spell additional trouble on the dairy demand front if consumers begin to spend less and go out less, actions that would be compounded by increases in milk production.
Writing in a recent Market Intel report, Munch said any impending recession could spell additional trouble on the dairy demand front if consumers begin to spend less and go out less, actions that would be compounded by increases in milk production.
“A quick glance at the dairy market’s high prices and decent demand signals might suggest dairy farmers are in good shape,” Munch wrote. “Unfortunately, analyzing milk prices only by comparing their face value over time is futile to understanding the breadth of challenges facing dairy farmers across the country.”
By milk prices alone, the past year or so has gone well for dairy producers, Munch wrote. Between May 2021 and May 2022, the base Class I (fluid milk) price increased by $8.35 (49%), the Class II (soft products like ice cream and yogurt) price increased by $9.65 (59%), Class III (hard cheeses and whey) prices increased by $6.25 (33%), and Class IV (butter and powders) prices increased by $8.83 (55%) per hundredweight (cwt).
According to Munch’s economic analysis, those strong milk prices have largely been dwarfed by increases in production costs. As of May 2022, the average corn feed costs used to calculate the USDA Farm Service Agency’s Dairy Margin Coverage (DMC) program margin was 22% higher than last year ($5.91 per bushel to $7.26 per bushel), the average soybean meal cost was 5% higher ($421 per ton to $441 per ton), and the average blended alfalfa price was 5% more ($210 per ton to $274 per ton).
“Dairy farmers are keeping proportionally less of their milk check under these periods of high milk prices, revealing the impacts of inflationary price pressures on the value of revenue,” Munch said. “Though the number on the check is higher, its value and buying power in the broader market has weakened.”
Record-high milk prices did offset higher feed costs in May, improving monthly dairy producer milk income over feed cost (IOFC) margins calculated under DMC. The May DMC margin was $12.51 per cwt, the highest since November 2014.
June’s DMC margin will be announced on July 29. As of July 14, the DMC decision tool forecast a margin of about $11.54 per cwt, down nearly $1 from May.
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