Inflation's Effect on Consumer Purchases and Dairy Farm Expansions
Katelyn Walley, Business Management Specialist and Team Leader
Southwest New York Dairy, Livestock and Field Crops Program
This month's commentary is brought to you by Katelyn Walley-Stoll's work on a "Diversify Your Dairy" project funded by NERME. Understanding, and responding to, dairy markets is a key component to your farm's risk management strategy. This material is based upon work supported by USDA/NIFA under Award Number 2021‐70027‐34693.
June's Milk Production was up by just 0.3% from 2021.New York saw a decrease of 7,000 head from 2021 to 2022 and a just a 1% increase in milk production per cow. Typically, we see a chain reaction when milk prices are high. Prices go up —> farms add cows —> milk production goes up —> prices go down. However, as we're seeing currently, year over year milk production increases of less than 1-2% can indicate strong or rising milk prices.
Today's continued slow growth is likely caused by continued economic concerns brought on by the pandemic, high input prices, labor shortages, and succession planning concerns. We're also still seeing many milk cooperatives deploy milk production controls like quotas, discounted milk sales, and tiered pricing which penalizes growth and maintains steady milk supplies.
We're starting to see a bigger response to inflation which is driving down dairy products purchases and prices. USDA market contacts report slight changes in consumer buying habits of higher costs products (yogurt, cheese). NMPF reports a decrease in overall domestic dairy product use and very recent retail dairy price hikes. Inflation on actual dairy products is historically uncommon, but rising prices for other consumer goods force buyers to make decisions which lead to decreasing dairy consumption.
Contrary to a slowly declining domestic market, the US continues to be competitive on an international level with strong export prices. US Dairy exports (by total milk solids production) hit a new record of 19.4% in May. Buttermilk, cheddar cheese, and American-type cheeses saw the biggest gains in export volume from 2021 to 2022.
USDA raised most of its price outlooks for 2023, citing higher cheese price projections, lower expected milk production, and strong exports.
More Information:
ï‚· Livestock, Dairy, and Poultry Outlook: July 2022 from USDA Economic Research Service Situation and Outlook Report.
ï‚· Dairy Market Report from National Milk Producers Federation.
ï‚· July Milk Production Report from NASS.
ï‚· USDA Foreign Agricultural Service: Dairy World Markets and Trade.
ï‚· AFBF Market Intel Report
This month's commentary is brought to you by Katelyn Walley-Stoll's work on a "Diversify Your Dairy" project funded by NERME. Understanding, and responding to, dairy markets is a key component to your farm's risk management strategy. This material is based upon work supported by USDA/NIFA under Award Number 2021‐70027‐34693.
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