Milk prices have not been in favor of dairy farmers throughout the U.S. Many farmers have been forced out of long-time operations. USDA predictions welcome gradual increases, but is it enough for farmers to stay in business?
Milk Price Projections
USDA economists made projections for the dairy industry over the next decade. They are expecting gradual growth in the industry. However, they don’t expect to see a sharp rise in prices.
From 2019 to 2022, USDA predicts the all milk price will stay near $17 per hundredweight. In 2023, they expect prices to move to $18 per hundredweight. They then expect prices to reach a high of $19 in 2026.
Prices are only expected to increase slightly. However, milk production is expected to increase by 14 percent over the next 10 years. They also expect the number of cows to increase by 65,000.
Too Little, Too Late
Despite the expectations for a slight increase in milk prices, it’s not enough to keep many dairy farmers in business. Current prices and the future of the industry have forced many producers out. The cost of production coupled with the low commodity prices, farmers have not been able to keep up.
“We’re seeing a significant loss of dairy farms,” said Larry Shover, president of the Iowa State Dairy Association board. “They don’t see a light at the end of the tunnel.”
For example, Iowa lost about seven percent of it’s dairy farms in this year alone. Recent data also shows Wisconsin has 634 less farms compared to a year ago.
The global flood of milk has depressed prices to about half what they were in 2014, and they still haven’t hit all-time lows, The Des Moines Register reported .
Even with large numbers of cows being culled, production is still increasing.
“The catastrophe is that we’re still producing more milk month after month after month,” Stephenson said, adding that the U.S. would need to see a significant increase in exports for dramatic improvement in prices.
The new trade agreement is expected to gain some dairy access in Canada. However, it is still not enough to change prices.
Regional leaders view the possible gains from the agreement “as too small and too far in the future to help (U.S.) dairy farmers,” said the Chicago Federal Reserve Bank recently.
Unfortunately, the loss of so many dairy farms should bolster prices. However, this impact has not been seen yet. A federal program could provide assistance for some dairy farmers. The USDA’s Dairy Revenue Protection launched this year and is modeled after federal crop insurance programs. It is designed to insure against unexpected declines in quarterly revenue from milk sales.
Dairy Revenue Protection
John Newton is American Farm Bureau Federation’s (AFBF) chief economist and helped create the program. He said through this month, the data shows producers signed up for about 150 policies through DRP, which covers 1.5 billion pounds of milk.
In contrast to the Margin Protection Program, this program is revenue-based not margin-based.
“The margin protection program is a margin based safety net,” said Newton. “This is a revenue based policy, so completely different sources of risk than traditional margin based tools.”
The goal of initiating this program was to bring the success from crop insurance to the dairy industry. Newton said the process was in the works for awhile. However, formulating such a program and getting proper approvals was a lengthy process.
Ultimately, he said the policy was designed to accurately appropriate money and meet the needs of producers, filling in the gaps of the current MPP.
Newton believes this program has been long awaited. Given the challenges presented to dairy farmers in the last Farm Bill, they felt more compelled to deliver this new tool to farmers.
The tool is sold by any licensed federal crop insurance agent.
Newton is aware this is not the fix all tool for dairy farmers. Therefore, he is also encouraging producers to use other risk management tools to mitigate losses.
USDA predicted slight increases in milk prices over time. However, it’s not offering enough relief for farmers to stay in business. The USDA recently launched Dairy Revenue Protection. For more information on the new program, visit dairyrp.com.
Image courtesy of The Christian Science Monitor