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Strength in Demand Prompts USDA to Raise All Milk Price Forecast into 2022

Tyne Morgan

September 21, 2021

Even with inflationary and labor pressures impacting the U.S. dairy herd, the latest check of the dairy balance sheet from USDA shows the forecast for lower production this month, but higher milk supplies for the year.

The agency is now projecting lower cow numbers, along with reduced milk per cow for September. USDA also expects those lower cow numbers to continue into next year, while also forecasting higher milk supplies. However, dairy exports recently reached new highs, and USDA expects the strength in exports to offset some of that growth.

"We raised most of our prices almost across the board for both 2021 and 2022, just reflecting the fact that we're seeing relatively strong dairy product demand of late combined with those higher milk supplies that we're both seeing and forecasting into 2022," says World Agricultural Outlook Board Chair Mark Jekanowski.

CoBank's lead economist is already cautioning about the impact inflation is having on the U.S. dairy herd.

During Farm Journal Field Days in late August, Tenner Ehmke, lead economist at CoBank, pointed out inflation is already starting to take hold on various segments of agriculture, including the U.S. dairy herd. He expects cow numbers to drop from levels the industry saw earlier this year, as the U.S. cow herd hit the highest point since 1994.

"In the last couple of milk production reports, we've seen the cow numbers tick just a little bit lower. And it appears as though the inflation story is catching up now to dairy," says Ehmke. "Look at not only the feed costs, even though that alone is going to cause some concern for dairy producers, but look at all the other costs. We're talking about steel costs, aluminum, copper, lumber, cement, anything that's required to build a new barn, a new parlor, a new grain bin, or anything for construction. The cost of doing that now is not really going to pencil in at current milk prices. And then you've got the labor situation as well. So add all of that together and it's really hard to come up with a story that we're going to see growth in the cow herd going forward."

Ehmke says inflation is just another factor cutting into cow numbers this year. He says labor is another paint point for producers and having a real impact on the U.S. dairy herd this year, but Ehmke expects production to not see the same pressures, as production per cow is still showing strength.

That sentiment was also echoed in the latest USDA report. According to AgDay, USDA's World Agricultural Outlook Board Chair expects production for this year and next will be up. The agency cites the fact lower commercial use is being offset by increased exports, while imports are expected to see a slight increase.

The all milk price forecast for this year is being raised this month by 20-cents per hundredweight, to $18.50 per cwt. And for next year, the price is raised by 55 cents to $18.40 per cwt.

Economists point out that while the milk price forecast is on the rise, inflation, labor issues and other factors are pushing operating costs higher, as well.



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