Major headwinds could stall a herd expansion
April 14, 2022
Traditionally, economists who follow dairy would predict that high milk prices bring forth more cows and more milk production. That may not be the case this time around, as the panelists on the April 6, 2022, Hoard’s Dairyman DairyLivestream have witnessed some headwinds to this typical industry growth pattern.
“This time there’s been quite a few headwinds toward doing that expansion,” shared BMO Harris’s Sam Miller. “Number one is that heifer availability is the smallest it’s been in quite some time.”
Simply put, breeding dairy cows to beef semen has limited the heifer crop across the industry. This has led to reduced options for purchasing milking animals to expand.
Secondly, tight processing capacity keeps milk from getting to consumers.
“We can talk about labor issues across the economy, and processors are having difficulty attracting labor, too,” Miller elaborated. “There’s just plain not the plant capacity to take on a substantial amount of increased milk.”
That ties into a third headwind that has become all too familiar to dairy farmers in the past several years.
“Then, you have the base and quota programs that many processors have added. Part of that’s because of that processing capacity, but that’s acted as a governor in certain parts of the country as well,” the agricultural lender noted.
These three major concerns fall amongst a number of other on-farm concerns that include inflation, price of fuel, building costs, and labor expenses. As Miller described during the webcast, some of these expenditures will regress, but others will likely remain elevated from here on out.
“Even though we may see some of the major costs come down in the future, some of the other costs are not likely to do so,” Miller detailed. “Keeping an eye on margins and managing price risk is as critical as it’s ever been and frankly more challenging when you have the volatility on both sides of the equation.
“The good news side of that is that I’d much rather see somebody have to make those decisions when you have a high price environment,” he concluded.