Dairy Market Snapshot

Drivers for the dairy industry include increasing inputs, strong production and exports.

• Drought conditions across much of the U.S. has caused increased input costs – primarily hay and corn. 
• Higher than expected cow inventory and surging milk production led to more milk on the market. 
• Weakness in the dollar and declines in U.S. dairy prices will keep exports active.
  

  Northwest Farm Credit’s 12-month dairy outlook anticipates slightly profitable returns. Increased feed costs will compress producer profitability. Risk management strategies will be increasingly important as government assistance reserves from 2020 dry up. 

  Northwest Situation

  Producers in the Northwest are well positioned following profitable conditions in 2020. Concerns over new labor laws in Washington have eased as producers have found ways to make payroll changes and manage overtime for workers. 
  
  Northwest dairy producers tend to fair well in a rising feed cost environment. A large portion of feed is grown on farms in the Northwest and most producers have already established contracts. However, drought is providing headwinds to on farm production. Extremely dry conditions across much of the United States has pushed corn and hay prices up as producers look to source feed in a competitive environment. This makes additional feed harder to source this year. Additionally, some producers are looking to capitalize on high grain prices and have switched to producing grain corn over silage for the year, further limiting non-captive local supply of corn silage.
  
  

  Northwest Production

  May milk production in the Northwest increased by 1.6% with Idaho leading the way. As a whole, the Northwest added and additional 9,000 head. The number of milk cows on farms in the United States is 9.51 million,152,000 more than in May 2020. 

Milk production in Australia in 2021 is forecast for a further increase to 9.2 million metric tons (MMT) on the back of a dramatic turnaround in 2020, resulting from drought-breaking rains and an excellent pasture and crop growing season in eastern Australia. These rains have improved pasture conditions as well as increased hay and silage reserves that were previously short. Milk production conditions continue to be favorable in 2021, including strengthening milk prices. At a mere 1%, the year-to-year increase in milk production from 2020 is smaller than previously estimated as some dairy producers continue to exit the industry and some dairy farms shift to beef production due to high prices in that sector. FAS/Canberra has revised downward the USDA official forecast of 9.4 MMT for 2021, down to 9.2 MMT. The positive attributes for dairy farmers in 2021 outlined above would typically be expected to support the previously forecast production increase to 9.4 MMT, however a combination of previously unexpected factors has crept in to influence the forecast. 

These influences are:

• Increased dairy farm property prices.
• Labor shortages caused by the ongoing Australian border closure due to COVID-19.
• High beef cattle prices.

Additional milk production in Australia will add to global supplies providing headwinds to gains in export markets.