Wisconsin dairy farmers are likely to see higher milk prices in 2022 and probably will have a more profitable year than they had in the two previous years, says Robert Cropp, professor emeritus with University of Wisconsin-Extension and UW-Madison.
But recent history shows milk prices can change quickly with relatively small changes in milk production, domestic sales or dairy exports, Cropp added.
Relatively strong butter and cheese sales in the fourth quarter of 2021, lower milk production and strong exports pushed dairy product prices and milk prices higher in December, Cropp said. The number of milk cows has been declining since May and by December was 0.7 percent lower than a year ago, he said. The number of milk cows is likely to continue to decline at least for the first half of 2022, he added.
An expected increase of less than 1 percent in U.S. milk production this year, growth in domestic demand for dairy products and increased dairy exports will tighten the milk supply, increasing milk prices, Cropp predicted.
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But inflation and COVID-19 could dampen domestic sales, he said. Higher prices of food, gasoline, heating and most all other consumer goods will reduce consumer spending power, and the extent to which COVID-19 will impact dining out, in-person classroom teaching, sports and public events is unknown, Cropp said.
While it appears milk prices will rise in 2022, much higher feed costs and the cost of labor and other inputs will cut into margins, Cropp said.
“Milk prices won’t be flat all year, so there will be some volatility from month to month, but it’s not expected to be nearly as volatile as 2020 or even the less volatile 2021,” he said.
Most farmers probably made some profit in 2021, but not enough for good returns on their labor, management and capital, Cropp said. “Probably not enough profit to pay down debt nor make capital purchases,” he added.
“Not all farmers fare the same,” Cropp said. “Those who were signed up for the Dairy Margin Protection Program at a $9.50 margin protection most likely fared better than those that didn’t because there were substantial payments under the program to cover lower milk prices and higher feed costs,” he said.
Overall, 2021 was not a great year for dairy farmers, but it was better than 2020, Cropp said.
The Wisconsin all-milk average price for December 2021 was $21.60 per hundredweight, up from $18.10 for December 2020. That was in large part because in 2021, milk production was running near or below year-ago numbers, Cropp said, while in 2020 milk production was running well above 2019 numbers.
“The all-milk price averaged $18.71 for the year in 2020 and $18.66 in 2021,” Cropp said. “Milk prices were very volatile in 2020 with the 2020 all-milk price as low as $13.70 in May and a high of $22.80 in November. For 2021, the all-milk price ranged from a low of $17.20 in February to a high of $21.60 in December.
“For 2022, I could see the all-milk price averaging $20.25 to $21,” Cropp said. “But prices could turn out even higher or lower. These prices are not certain. It will depend upon final milk production, domestic sales and exports. Milk prices can change with small changes in any of these factors.”