Keep a pulse on issues facing farmers with these top five dairy industry trends to watch:
1. High feed costs
Feed costs continue to soar, with experts predicting costs to remain high throughout the year. Corn prices are up nearly 60% compared to last year,1 with soybeans and other key crops in a similar boat. Average feed costs are up more than $5.00 per hundredweight compared to the previous year.2
With high feed costs coupled with low milk prices (August Class III price was $15.95, down $3.82 from the previous year), farmers face low margins and limited profitability. Government programs such as the Dairy Margin Coverage payments provide a short-term solution to support dairy farmers as the pandemic continues.
2. Growing conditions
One of the drivers of high feed costs is poor growing conditions across the U.S. Many states experienced drought conditions for several months in 2021. While the Midwest and Southeast areas are feeling some relief, many Western states continue to experience extreme drought.
On the other hand, the Northeast states have received record-breaking rainfall and were hit hard with flooding and weather impacts from recent Hurricane Ida.
Dairy farmers will need to keep a close eye on forage inventories and forage quality for the coming year. Proactive planning on making the most of the available forages and strategic forage buying strategies will be key to reaching milk production and profitability goals.
3. Water challenges
With the drought in full swing, limits on water access and availability puts a toll on dairy farmers — both on the crops and the cow side. Many western states, particularly Arizona, will be impacted by large cuts to water access from the Colorado River, driven by a water shortage in Lake Mead, the main lake feeding the Colorado River. This shortage and other water restrictions may limit opportunities for dairy farmers in the future.
Another water issue to keep an eye on is updates to the Waters of the United States regulations. The Biden administration’s focus is on restoring protections to streams, ditches and adjacent wetlands, which could impact how farmers manage water sources.
4. Negative PPDs and quotas
Negative producer price differentials (PPDs) continue to impact dairy farmers across the country — taking as much as $1-2 per hundredweight away from their Class III base price. Depooling is a root issue that needs to be addressed for cheese plants participating in the federal order. Many legislative efforts are in the works to address negative PPDs.
More milk processors are implementing their own quota or base pricing systems. These systems could generate higher milk prices for farms meeting quota. In some cases, new quotas are based off production from years prior to 2021. Farms that have grown or are achieving more milk per cow in the last year are likely to exceed quota and will be docked for additional milk volume. Options are available for farms to purchase more quota if available.
5. Alternative revenue streams
Dairy farmers are looking for ways to bring in additional income. Two ways receiving lots of recent chatter are beef on dairy breeding programs and carbon credits.
Beef on dairy has gained momentum with an estimated 2 million head of dairy-beef crossbred animals in the U.S. Breeding lower genetic animals to beef or implanting with full beef embryos allows farmers to cut down on replacement animals, raising only what they need. And, the resulting beef calves provide additional income when sold for market.
Carbon credits are another growing market for dairy farmers. Farmers can be paid for the carbon removed from the atmosphere by sustainable farming practices through carbon markets. There’s much to learn about this emerging opportunity, but it’s likely to become more mainstream in the years to come.
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2 Dairy and Food Market Analyst April 23 report