2022 Milk Price Forecast: High Cost of Production Neutralizes High Milk Prices
March 2, 2022
As producers flipped their calendars from 2021 to 2022, the hope for higher milk prices was on the horizon. When milk checks began to hit mailboxes at the beginning of the year, producers felt a sense of relief, yet high feed prices, supply chain issues and labor shortages still loomed at the front of their minds.
So far, milk prices have hit their highest marks since 2014. But the cost of production has eaten away at dairy farmer’s profits. While higher milk prices have sparked encouragement throughout the dairy industry, producers are curious as to how long these prices will last.
During the USDA’s 98th Agricultural Outlook Forum, Carolyn Liebrand, an Agricultural Economist for Agricultural Marketing Service, spoke on what milk price predictions might look like for the remainder of 2022.
“In a broad overview of 2022, we are going to see slow milk production growth worldwide which will support stronger prices,” Liebrand says. “[This year] we are expecting slow milk supply growth [worldwide.] The EU and New Zealand are expected to face higher costs and maybe environmental regulations that will keep cow numbers limited. Likewise, the U.S. is expected to see low cow numbers.”
This drop in production should support stronger prices, however, other production costs may stunt this growth.
“Feed prices will increase, but it's possible the increase in milk prices may outpace that,” Liebrand notes. “However, the other production costs are expected to increase. In particular, it will be labor costs and availability [as well as] fertilizer costs and availability that will impact dairy farm profitability.”
Imports and Exports
Increased imports into the country along with heightened exports out of the country will also play a significant role in prices this year.
“Imports are expected to grow on a milkfat basis due to an increased demand in premium butter and high U.S. prices drawing product in,” Liebrand says. “In contrast, commercial exports are expected to improve slightly in 2022. The high domestic price of butter is what is limiting the exports of the products on a milk equivalent skim fat basis. We expect, on a skim milk basis, [prices] to increase slightly over last year.”
According to Liebrand, domestic use of U.S. dairy products will see a slight boost. However, this demand will be affected by inflation. The Covid-19 movements between food eaten away from home and grocery retail prices will keep a lid on domestic retail use.
“With the moderate milk supply and the increase in exports, we’re going to see a slight decline in commercial ending stocks on both the skim and milkfat basis,” she adds
In 2021, butter exports doubled. Supplies were abundant during the first part of 2021, but then fell below year earlier levels towards the end of the year. According to Liebrand, this helped support butter prices. Domestic U.S. butter prices fell below world prices, and that is what brought in some extra imports. The USDA expects butter prices to decline somewhat mildly as 2022 progresses, but to end the year at $.66 above last year.
Nonfat Dry Milk
Liebrand notes that world dry skim milk product markets are tight for dry milk supplies. U.S. prices were below world prices, causing exports to increase 10% in 2021. Last year, dry skim milk products accounted for 75% of total dairy exports. This caused supply levels to drop below previous year levels, allowing prices to slowly increase. In 2022, nonfat dry milk prices are predicted to strengthen before later declining as the Oceania 2022-2023 milk production season comes on.
Cheese exports rose almost 14% in 2021, mostly during the second half of the year. Production also grew, rising nearly 3%, causing ending stocks to increase by 1.4 billion lb. This rise in cheese stocks will limit growth for cheese prices. However, Liebrand says the USDA predicts cheese prices to be $.22 higher than last year.
Exports made up over half of the total commercial use of dry whey in 2021. Supplies were tighter compared to earlier years, and that tightness is reflected in higher dry whey prices.
“The strength in whey prices were supported by the strength in the demand for protein, as reflected in soybean meal price and whey protein product prices,” Liebrand says. “So, that has undergirded our dry whey prices. We expect the increase to continue into the first quarter of 2022 as prices for protein ease somewhat. In 2022, we expect dry whey prices to come down as the cheese production increases [as well as the] spring flush. Dry whey prices should average $.14 per pound above 2021 prices.”
While labor shortages and increased cost of production will certainly take a chunk out of dairy producers’ profits, Liebrand says the increase in dairy product prices should support higher milk prices in 2022.