Market report: milk supplies down, potential record prices

April 27, 2022

U.S. milk production lagging behind year-ago levels, combined with robust demand for dairy domestically and overseas, are driving milk prices toward record highs, even as inventories remain relatively balanced. Higher feed costs continue to eat into farmer margins.

U.S milk production was 1.7 percent lower than a year earlier in January, but this moderated to just under one percent lower in February. Cheese production and seasonably increasing ice cream and frozen dairy products are claiming a growing portion of available milk at the expense of butter and dry skim milk, the traditional supply balancing products.

Domestic commercial use during the first months of the year was robust for butter, all major types of cheese, and total milk equivalent, both fat and skim solids. Meanwhile, U.S. dairy exports rebounded in February to 16.6 percent of U.S. milk solids production, following two months at 14 percent or below. Wholesale dairy product prices continue to increase, but some retail prices are increasing much faster, particularly for fluid milk and, just recently, butter.

U.S. average milk prices are expected to reach roughly $27/cwt during the second half of 2022, according to current futures. However, feed costs will likely reach the same high levels they did during the drought period of 2012-2013. That will restrain DMC margins, but still at rates above the maximum coverage level of $9.50/cwt.