Economist Shares It Will Be a Tough Year Ahead for Dairy
As dairy producers open up their summer milk checks it will be hard to celebrate. This echoes the sentiments from Ben Laine, a senior dairy analyst with Terrain, who shares he is significantly less optimistic about milk prices and the overall state of the dairy economy compared to the beginning of the year.
Laine notes it is difficult to give the dairy economy a current grade, sharing it gets challenging when looking long-term, that futures are above the 5-to-10-year average.
“For example, we're really probably slightly above that or close to in line to where that long term average is,” he says.
Laine adds that compared to last year, the dairy economy is much worse in terms of milk price, which is down significantly from last year’s record-setting prices, paired with still-high input costs.
“I think it’s pretty difficult to find anyone who's above breakeven at these levels,” he shares.
Good News on the Horizon?
Laine is hopeful that a bearish grain market will push feed costs down but it won’t happen overnight.
“That's not something that's going to show up immediately. I think what is going to provide some support to milk prices in the second half of the year moving into next year is going to be a little bit more contraction on the supply side,” he says.
Laine also shares that the strong beef market incentivizes producers to sell off the bottom end of their herd.
“A lot of folks in this type of environment where the milk profitability is slowed and negative, it’s incentivizing higher cull rates, so you're going to see a little bit of contraction, I expect, in the milk cow herd, tightening up supply a little,” he says.
Although Laine shares he is not convinced that a supply contraction on its own is going to be enough to propel us forward.
“I think we're going to need a little bit tighter supply, but we would really need a big demand surge to see a significant increase in prices at this point,” he adds.
Laine does state that June is likely to be the bottom of prices, although he is being cautiously optimistic for the second half of the year.
“I think we'll see some upward movement, but it's still going to be a tough year,” he shares.