Here are the Factors that Could Support or Mute Milk Prices into 2022
As dairy producers across the country wade through higher costs, export demand continues to be the bright spot in the dairy industry this year.
“Dairy exports have, in fact, been a big reason for the rise in Class IV prices,” says Mike North of ever.ag, who will be featured on a live taping of U.S. Farm Report during World Dairy Expo next week. “The rising export of butter to Canada along with the ongoing demand for powders have worked in conjuction to add value to a space that was embattled by COVID issues. If world economies stay in recovery mode, there is a lot of opportunity here.”
North says a similar conversation can be applied to the Class III market, as whey and cheese export products continue to be the driving factor for high demand.
“Keep in mind that roughly 16% of U.S. milk supply is exported, so as we go into the fourth quarter, and U.S. consumers are gobbling up dairy products for the holidays, these added exports create a very solid demand picture and can help the cause of higher milk prices through the balance of the year.”
Ben Laine, a dairy analyst with Rabo AgriFinance, will also be featured on the U.S. Farm Report panel during Wold Dairy Expo next week. He also says excelling exports have been a key factor in the milk market action. However, he cautions exports may not be enough to carry prices moving forward.
“Export strength has been critical in helping support markets throughout the pandemic and into this year, but continued export strength can never be taken for granted,” says Laine. “We also need continued momentum in domestic demand to really carry us through.
It’s that demand piece of the puzzle that Laine views as the biggest risk to the dairy industry right now.
“The biggest risk would be any disruption to domestic demand from additional COVID surges or lockdowns,” says Laine. “We find that level of disruption unlikely, but the risk exists. A more likely downside risk is the potential that China will dramatically reduce their import needs over the second half of 2021. Global markets would become heavy with dairy commodities in 2022, which could impact milk prices in the U.S.”
North says the pandemic and the impact on consumer behavior will be a factor to which dairy producers will need to pay close attention, while rising costs are putting a damper on overall revenue potential this year.
“The biggest risk for the U.S. dairy industry currently lives in demand,” says North. “While rising feed costs have not been kind to profit margins on the dairy, that element is causing dairies to cut cows or sell out. From a price perspective, that is a supportive element now that we are going through it. Increased costs make life on the dairy more difficult. But that is something we are dealing with presently. The risk lives in what we aren't quite sure about. Today that would exist in the demand portion of the discussion.”
From questions surrounding whether restaurants will be able to operate at full capacity this winter to wondering if consumers will feel comfortable enough to continue to go out and eat, he says the uncertainties are ramping up.
“Will processors be able to secure packaging, trucks, containers, workers? Will ports back up even further? Will world economies continue to recover or slump? These are the questions we are asking and seeking answers to,” adds North. “As we understand them better we will be able to more appropriately size up risk. In the meantime, they remain as the chief threat to a recovering market.”
You can hear both North and Laine during the live taping of U.S. Farm Report from World Dairy Expo next week. The taping is scheduled for Thursday, September 30. The U.S. Farm Report taping wil begin at 8 a.m. and will be located in Tanbark arena building and will provide producers a chance to also ask questions of the panel.
