Dairy Producers Feel the Pain as Milk Prices Plunge Almost $10 Under Last Year's Record Prices

It’s June Dairy Month, but this year there’s not as much for dairy producers to celebrate. Milk prices have plummeted, and some are even having to dump milk.   

After hitting a record high for Class 3 fluid milk in April 2022 at nearly $26, spot month milk futures have plunged to new contract lows, hitting $14.92 per hundred weight on June 16. 

Greg Moes, with MoDak Dairy of Goodwin, South Dakota, says the milk market has been a roller coaster.

"Last year was close to almost $10 difference on the milk price, and right now we're overproducing from the processing side and the use side," he says.  

Much of the Upper Midwest processing capacity is maxed out and some producers have even had to dump milk. Mitch Thompson, Thompson Family Dairy, Lewiston, Minnesota, shared on social media: "The processing plant can’t handle all the milk from everybody apparently for a couple of reasons. They have too much apparently, and they can’t get anyone to work so they can’t process the milk. So, the processor came and picked it up and he’s dumping it in a field right now."

Unfortunately, processors don’t see any signs of the tide turning. The glut of milk is coming from overproduction, plus fluid milk sales have declined dramatically, especially with schools closing for the summer.  Exports have also slowed off their record pace. 

Marv Post, president of the South Dakota Dairy Producers Association and a Volga, South Dakota dairy producer, says, "Our extra milk that we produce every year, the year-over-year increase in milk, 90-plus percent of that has to be exported. We need to continue to work so we can move more product."

With the low milk prices and high feed costs Post says many dairies are operating below the cost of production. "If you want to use 15 and a half dollars as your mailbox price, you're losing about $6, and it may be even more depending on when you put in silage, if you were buying it last fall when corn prices were really high."

As a result, Dairy Margin Coverage (DMC) and Dairy Revenue Protection (DRP) insurance payments kicked in at the start of the year. But it doesn’t make producers whole, according to Nicolien Hammink, an owner in Hammink Dairy near, Bruce, South Dakota. 

"It helps a little bit, but it's more if you have less cows. We do have DRP, and it is better for us than DMC."

USDA has tried to shore up the market by buying $47 million of cheese.

"Is it enough to really push the market? I doubt it myself," Post says. "It only takes that very top extra that will push the market down. So, we hope that it will have a positive influence."  

Fortunately, 2022 was a very profitable year for the dairy industry, so there hasn’t been much cow liquidation yet.  But if milk prices remain low, some operations might be forced to cull. 

"We don't have the 200-cow, 50-cow herds to lose to go down in numbers," Moes says. "It's all going to be up to the producers who are here to reduce the number of cows in our herds and tighten up that way because you know we have to get down to a certain point. There aren't enough producers to lose any more in this part of the world."  

There is more incentive to cull with the strong beef cattle market. The hope is that will slowly help the market rebound, and many operations will be able to ride out the storm. 

"It's important to understand that dairy is a long-term sustainable business. We go through the ups and the downs of the business and the market. But these are extravagant businesses that know how to manage their money and can handle those trends," says Darrel Rennich, strategic account manager with Zoetis.