Key Market Signals That Could Influence Milk Prices in 2024
Source: The DairyNews
Phil Plourd, president of Ever.Ag Insights and a prominent dairy economist, recently addressed the 2024 Pennsylvania Dairy Summit, shedding light on crucial market signals that could impact the trajectory of milk prices this year.
Here are eight key factors to watch:
Fluid Milk Consumption Trends: Plourd highlighted the decline in fluid milk sales, attributing it to changing consumer habits. He noted that many Americans may find it too cumbersome to sit down and pour milk over their cereal. However, he emphasized that dairy remains resilient, with increased consumption in other forms like cheese.
Dairy Exports: Plourd discussed the challenges faced by the dairy export market in 2023, with a 16% decline in export value compared to the record-setting year of 2022. The reliance on exports, particularly to key partners like Mexico, played a crucial role in mitigating potential losses.
Insurance Payouts: The introduction of Dairy Revenue Protection (DRP) in 2018 significantly influenced risk management for dairy farmers. In 2023, insurance payouts exceeded $415 million, providing crucial support to producers during a challenging year.
Negative Milk Production: The U.S. experienced a seven-month consecutive decline in milk production, accompanied by a reduction in cow numbers. The sustainability of this trend remains uncertain.
Farm Profitability Outlook: The farm profitability outlook for 2024 appears slightly better than the previous year, driven by high Class IV prices and Dairy Margin Coverage (DMC) margins nearing $10. Feed cost reductions and increased soybean crushing capacity further contribute to improved prospects.
Plant Capacity Utilization: With a downturn in production, Plourd raised concerns about maintaining plant capacity, especially with expansions in the mid-section of the country. The challenge lies in ensuring that increased cheese-making capacity aligns with market demand.
Replacement Inventories: The semi-annual cattle report indicated that replacement inventories are at their lowest level in two decades. A shortage of young animals poses challenges for expanding U.S. output, particularly in the context of strong demand for beef.
Impact of Higher Interest Rates: Plourd emphasized the significant impact of a 500-basis point increase in interest rates over the past 12 to 18 months. The higher interest rates substantially affect the cost of constructing new dairy facilities, serving as a sobering factor for farm development.
In conclusion, while uncertainties persist in the dairy economy, closely monitoring these market signals can provide valuable insights into potential shifts and opportunities for the industry.
Fluid Milk Consumption Trends: Plourd highlighted the decline in fluid milk sales, attributing it to changing consumer habits. He noted that many Americans may find it too cumbersome to sit down and pour milk over their cereal. However, he emphasized that dairy remains resilient, with increased consumption in other forms like cheese.
Dairy Exports: Plourd discussed the challenges faced by the dairy export market in 2023, with a 16% decline in export value compared to the record-setting year of 2022. The reliance on exports, particularly to key partners like Mexico, played a crucial role in mitigating potential losses.
Insurance Payouts: The introduction of Dairy Revenue Protection (DRP) in 2018 significantly influenced risk management for dairy farmers. In 2023, insurance payouts exceeded $415 million, providing crucial support to producers during a challenging year.
Negative Milk Production: The U.S. experienced a seven-month consecutive decline in milk production, accompanied by a reduction in cow numbers. The sustainability of this trend remains uncertain.
Farm Profitability Outlook: The farm profitability outlook for 2024 appears slightly better than the previous year, driven by high Class IV prices and Dairy Margin Coverage (DMC) margins nearing $10. Feed cost reductions and increased soybean crushing capacity further contribute to improved prospects.
Plant Capacity Utilization: With a downturn in production, Plourd raised concerns about maintaining plant capacity, especially with expansions in the mid-section of the country. The challenge lies in ensuring that increased cheese-making capacity aligns with market demand.
Replacement Inventories: The semi-annual cattle report indicated that replacement inventories are at their lowest level in two decades. A shortage of young animals poses challenges for expanding U.S. output, particularly in the context of strong demand for beef.
Impact of Higher Interest Rates: Plourd emphasized the significant impact of a 500-basis point increase in interest rates over the past 12 to 18 months. The higher interest rates substantially affect the cost of constructing new dairy facilities, serving as a sobering factor for farm development.
In conclusion, while uncertainties persist in the dairy economy, closely monitoring these market signals can provide valuable insights into potential shifts and opportunities for the industry.
