With signs of a recession showing up everywhere, even at the farm level, there still is a bright storyline that producers can find hope in.
According to Tanner Ehmke, lead dairy economist with CoBank, global consumption of dairy products continues to go up.
“We're seeing less competition from our major exporting competitors like New Zealand and Europe,” he says. “As they struggle with their production issues, whether it's political or economic or with energy, a lot of that production and export opportunity is going to come here to the U.S. I think there's a lot to be hopeful for in the long term.”
Ehmke says that in the short term, he does see feed prices coming down at some point.
“We just got to get through this growing season to see what that looks like,” he says. “There is a lot of uncertainty right now on the feed side of things that is keeping prices elevated. At some point, those prices will come back and margins will improve. You just got to work through these cycles.”
In order to work through the cycles of ups and downs in the industry, a good relationship with your lender and accountant is a must. Ehmke says working with a business team will help you get through the rollercoaster cycle.
Manage for a Margin
With margins getting tighter and tighter, risk management is a fundamental key in helping producers manage for a margin.
“It's going to take a nimbler marketer and manager to control costs and maximize revenue,” Ehmke says. “The star dairy farmers are born in these kinds of working environments.”
Supply Chain Turn Around
The supply chain problems that every consumer and producer felt are becoming less problematic. According to Ehmke, shipping costs have come down some. He also says that there is less of a backlog of ships waiting to export goods.
“The lineup of ships outside of Los Angeles has come down by quite a bit,” he says.
A once-80 cargo ship backlog spelled disaster for those exporting perishable goods, like dairy products, over to Asia. Today that line-up is down to two or three ships.
This has all helped reduce the number of headaches and help bring down costs some, too. Ehmke shares that as the economy slows down, that will help free up more transportation which will allow rates to drop.
“One of the big problems. though, is transportation on the Mississippi River,” he says. “With that drought and record low level, it has obviously been a problem for moving any products down the river.”
While the challenges ahead for dairy producers are real, the silver lining is that both global consumption for dairy is on the rise and the supply chain headaches have lightened compared to how we started 2022.
By KAREN BOHNERT
November 15, 2022
dairyherd.com
