The dairy market is experiencing a significant transition as economic factors from 2022 carry over into 2023, impacting milk production levels. Phil Plourd, head of market intelligence at Ever.Ag, recently discussed these developments with Chip Flory, host of AgriTalk.
Economic Factors Influencing Milk Production
Plourd highlighted that lingering poor economics from 2022 have decreased milk production compared to previous levels. However, despite these challenges, the current market situation presents a better profit potential for dairy producers over the next 12 months.
“In the meantime, we’ve shifted the prices to being quite high, and the profit potential on the table for dairy producers for the next 12 months is as good as it’s ever been in terms of the 12-month forward look,” shared Plourd. Historically, more money in the market generally translates to increased milk production. “We see the wheels turning in a way that that should generate more milk production in the months ahead,” he added.
Impact of Beef-on-Dairy Breeding
One significant trend affecting milk production is the adoption of beef-on-dairy breeding, resulting in fewer dairy replacement animals. Plourd noted the inherent challenges and costs associated with this breeding strategy.
“They [replacement heifers] are expensive and fewer in numbers,” he said. Larger dairy operators planning expansions have been strategizing on how to generate replacements, either by growing them or purchasing.
“I don’t think they’re going to wake up three days before they open the new dairy and say, ‘Oh, wait, I need heifers,’” Plourd remarked, emphasizing the importance of long-term planning to mitigate these challenges.
Domestic Demand and Market Dynamics
The domestic demand for dairy products has been lackluster over the past several months. Plourd pointed out that the consumer environment, constrained by inflation, high prices, and other challenges, is a significant contributing factor.
“Given the sort of a constraint in consumer environment, reacting to inflation, high prices, other challenges, we just have not seen demand grow all that much,” he explained.
Despite a dimmer outlook for demand through the end of the year, Plourd remained cautiously optimistic, stating, “It’s not falling apart,” although high prices do pose challenges for stimulating demand.
Expansion Projects and Future Outlook
There are, however, some positive developments in the industry, with expansions already taking place. Notable projects include South Dakota’s Valley Queen Cheese, which is adding 3 million lbs. of milk per day, and Hilmar Cheese in Dodge City, Kan., soon set to open its doors to intaking milk.
“There’s generally somewhat more enthusiasm there, because there’s a lot of different plant projects going on. I don’t think we’re seeing big expansions outside of those sorts of big projects,” Plourd observed.
Profitability and Future Predictions
While the future profitability of dairy production remains cautiously optimistic, Plourd emphasized the need to consider the cost side of the equation.
“We’re kind of on the high side right now, but there’s a good chance that, when we see seasonal unwinding of these markets, that the floors are higher than what even guessed a few months ago,” he said.
While the dairy market faces a unique set of challenges and opportunities, careful monitoring and strategic planning can help navigate this complex landscape towards profitability.
To listen to the entire conversation between Plourd and Flory on AgriTalk, go to AgriTalk-10-1-24-Phil Plourd - AgriTalk - Omny.fm
