4 Reasons Why Milk Prices Are Considerably Lower Than 2022
Nearly a year ago, milk prices were $9 per cwt. higher and that resulted in heftier milk checks for dairy producers. Now, producers take one glance at their milk check and the milk futures and they find a difficult time to celebrate. The reality that producers have grown to understand is that good times don’t last forever and neither do good milk prices.
Last year’s record milk price year fueled producers with optimism and strategy. Most knew that good times don’t stick around forever and strategically planned how to utilize the extra income from strong milk prices.
The reality is that the tides have changed and 2023 spells a completely different story for dairy producers than the year prior. Many producers are asking the question, “What has changed to wildly swing milk prices?” Phil Plourd, president of Ever.Ag Insights, offers four main points that explain why producer’s milk checks are considerably less than just a year ago.
- Milk production swings from negative to positive in both the U.S. and Europe
- Soft domestic demand thanks to inflation and higher food prices. Plourd shares that consumers are having to stretch their dollars, trading down, trading out with the vulnerable economic environment and in his words, “Consumers are stressed.”
- We are experiencing a challenging export market for the U.S. “Our cheese pricing has not been competitive on a forward basis and our butter pricing has not been competitive under any scenario,” he shares.
- China's internal milk production is up, their stockpiles are elevated, and their demand is soft thanks to tough COVID-19 restrictions.
Curtis Gerrits, a senior dairy leading specialist with Compeer Financial, says that coming into 2023, dairy businesses have leveraged their working capital by implementing larger amounts of pre-paids ensuring fixed pricing for better financial planning for the upcoming year. He also shares that producers need to not lose sight of what needs to be done day-to-day.
“Milk and crop sales are the foundation of your dairy business,” he says. “Continue to hone in on a high-quality and quantity product that can ultimately lower your cost of production and improve profitability.”
Independent dairy financial consultant, Gary Sipiorski, says as dairies plan for their farm’s future, it is essential that they ask how they can keep their dairy in a good financial position.
“Profitability in 2022 was anywhere from $3 per cwt. to $6 per cwt.,” he says. “Working capital is and will be very important as we currently anticipate a declining milk price curve.”
