Food and Agricultural Policy Research Institute: Dairy Outlook

Chris Zoller, Extension Educator, Agriculture and Natural Resources, Tuscarawas County, Ohio State University Extension

The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri recently released its latest U.S. Agricultural Markets Outlook.  The full report is available here: https://www.fapri.missouri.edu/wp-content/uploads/2022/03/2022-U.S.-Agricultural-Market-Outlook.pdf.  This article provides a summary of the dairy outlook presented in the report.

Introduction

The latest FAPRI report establishes projections for dairy to the year 2031.  The data used to make these projections were based on information available in January 2022.  FAPRI recognizes much has changed since information was gathered, especially the war in Ukraine.  The authors of the report acknowledge that several factors may potentially impact the predictions.  These factors include exports, commodity prices, input expenses, net farm income, government farm programs, and consumer food prices.

The projections in this report assume no new ad-hoc government payments (like those related to the COVID-19 pandemic) will be provided and provisions of the 2018 Farm Bill will continue.  On a macroeconomic level, the authors recognize the uncertainty of oil markets, the likelihood interest rates will rise, and estimate corn variable costs will increase 2.2% per year.

Dairy Outlook

The number of dairy cows in the United States has dropped more than 130,000 head from the peak in May 2021.  Rising feed costs and reduced profitability are major reasons for the drop in inventory.  Milk prices have improved substantially, with dairy producers expected to increase cow numbers later this year.  Milk production is expected to increase only 0.6% this year, the second smallest since 2013.

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The FAPRI outlook shows encouraging numbers for price, exports, and demand.  International demand for U.S. dairy products is expected to remain positive. 

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While the Dairy Margin Coverage (DMC) program is not expected to make a payment this year, it continues to be an important risk management tool.  Improved prices will likely result in increased cow numbers which are projected to result in declining prices, resulting in a decline in the margin.

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Moving Forward

The projections provided in this report are well researched given the information available today but are subject to change.  Weather, geopolitics, and many other factors are unknown and can’t be controlled.  However, I encourage you to manage what you can control and consider the following recommendations:

  • Know your cost of production. What is it costing you to produce each 100 pounds of milk?  If the price forecast in this report is true, can you make money?  If not, what changes do you need to make? 
  • Consider enrolling in the OSU Extension Farm Business Analysis and Benchmarking Program (https://farmprofitability.osu.edu/) to complete a whole-farm and enterprise analysis.
  • Use budgets and scenarios to plan.  OSU Extension Enterprise Budgets for corn, corn silage, and alfalfa are updated and available here: https://farmoffice.osu.edu/farm-management/enterprise-budgets.
  • Meet with your Extension Educator to review budgets and plans.
  • Talk with your input providers.  What are they able to tell you about input price projections?
  • Keep your lender informed of your finances and plans.
  • Talk to family members about the future of your business.
  • Stay tuned to what is happening around the globe and the potential impacts to agriculture and your business.