Dairy industry participants have had several tough years over the past decade as it relates to milk and milk product prices. However, the end of 2021 and the beginning of 2022 have been positive from a price received standpoint. With the U.S. all milk price sitting close to $25 per hundredweight, this is the highest all milk price since September and October of 2014. The price support is not coming from any one product. Rather, it is being supported by most dairy products as butter, cheese, dry milk and whey are demonstrating strength in the current market. Class IV milk prices are setting records while Class III milk prices are only $2 below the record.
Understanding that milk prices are not the only factor in profitability, the immediate concern in today’s dairy industry is feed price. The price of most feedstuffs has increased along with inputs for feed to be produced in 2022 including hay, silage, and grain. The national milk-to-feed price ratio sits just over $2 per hundredweight, which is considerably stronger than 2021 and represents a strong margin given the booming milk price. The same milk-to-feed ratio when milk is only $15 per hundredweight is not nearly as lucrative as the margins experienced when milk is hitting $25 per hundredweight. However, if the ratio shrinks with milk price remaining elevated then that results in a poor return on investment and increased financial risk. Dairy producers may find it advantageous to lock in milk and feed prices with this many dollars on the line.
Source: Livestock Marketing Information Center