Last year saw a marked decline in milk prices from 2022. Feed and fuel costs declined to a lesser extent, but many other expenses increased, reducing margins for dairy producers. Farm Credit East and Crop Growers crop insurance recently hosted a webinar to provide a 2024 outlook for the Northeast dairy industry.
Webinar presenters included Cornell University’s Dr. Chris Wolf, who provided an overview of the dairy economy, changes to milk production and sales in 2023, the state of dairy markets around the world, and other factors that may influence the coming year for dairy producers, with a focus on the Northeast. Following, Dr. Marin Bozic discussed risk management strategies in consideration of the market outlook. Read on for key takeaways from this webinar.
2024 US Dairy Situation & Outlook
- Milk production in the U.S. was down 0.6-0.7% in 2023 compared to 2022. This has helped support milk prices.
- Milk component production (butterfat and protein) per cow continues to increase due to genetics and nutrition. Butterfat per cow is up significantly over the past five years.
- Dairy exports were strong in 2022 but lagged in 2023 compared to 2022 levels. Exports are important for supporting milk prices.
- Domestic fluid milk consumption continues to decline but cheese and butter consumption is increasing.
- The price spread between Class III (milk used for cheese) and Class IV (milk used for butter/powder) is increasing in anticipated 2024 futures. This may be due to new cheese plant capacity coming online and regional differences in milk supply.
- The futures market is forecasting an average all milk price of $20/cwt. for 2024. The outlook predicts Class III prices improving from current levels of around $15 to $18 by late 2024.
- Dairy profitability historically has been driven 75% by milk prices and 25% by feed costs. Monitoring global supply/demand balances will be key for the milk price outlook.
Dairy Revenue Protection (DRP) Update
- Adoption of risk management programs like DRP is lower in New York compared to some other major dairy states. More participation could benefit the state’s farms.
- Buying DRP coverage further out (i.e., 4th quarter) has provided the best returns historically based on net indemnities. But most producers focus on nearby quarters.
- Proposed changes to DRP subsidies could make coverage more affordable for further out quarters, if approved. This could encourage more far out hedging.
- DRP yield adjustments have helped increase indemnities more often than hurt them recently. But yields are variable and the focus should be on protecting against big milk price declines.
- "Free" or prepaid DRP options that give up upside potential can leave a lot of money on the table in a rally, like what happened in 2020. Solid risk management has value.
- Upcoming farm bill unlikely to bring major dairy program changes. Dairy Margin Coverage participation still recommended.
- Growth in beef semen use on dairy farms provides revenue protection opportunities with livestock insurance products.
To dive deeper into the above topics, review the 70-minute webinar recording along with the presenters’ PowerPoint slides.