The dairy industry is on track to see milk prices above the $20 per cwt mark in 2022. This would be the first time dairy farmers have seen USDA milk price projections at this level since 2016, according to ag economist Dan Basse.

Basse, president of AgResource Co. in Chicago, credits strong milk prices to a shrinking U.S. dairy herd, lower domestic and global milk production, and increasing domestic and global demand for dairy products.

Less milk, cows in U.S.

Basse thinks USDA’s milk production forecast for 2022 is too high.

“They are predicting 58 billion pounds of milk in the first quarter, 59 billion in the second quarter, then we’re back to 57 billion in the third quarter, and we hold that amount in the fourth quarter,” Basse says. “I would trim these numbers by 1 [billion] to 3 billion pounds, which gives me a more robust Class III milk price, making it up to $21 to $23 in the second or third quarter next year.”

USDA is predicting the all-milk price for 2022 will be $20.25.

Basse is confident in agreeing with these high milk prices for the coming year because of what he sees in the weekly USDA dairy cow kill numbers forecast.

“We are well above kill numbers in 2021 than we were in 2020,” he explains. “We’ve fallen a little below 2019, so we’re not seeing as aggressive kill numbers as we have had, but I am looking at a contraction in the U.S. dairy herd going forward.”

U.S. dairy cow numbers are down 81,000 from May to November, after peaking at 9.45 million in May.

“I think that number comes down to less than 9.4 million as we get to the end of 2021,” Basse says. “Then I look at total milk production, and we are no higher than we were last year.”

Basse predicts milk production per cow will not rise through the end of the year. “That’s why I’m cutting my milk production forecasts,” he says.

Global pace of dairy production

Basse notes that dairy cow numbers in the European Union are in decline and have been since 2017.

“I don’t see this trend changing anytime soon,” he says. “Feed costs will stay elevated, and it’s becoming difficult for European dairy farmers to expand their herds. Less milk in Europe gives more opportunity to U.S. dairy farmers.”

Globally, milk production is declining. “Oceania and Australian milk production are down, too,” Basse says.

He says world demand for butter is rising sharply. “The butter market is bullish,” he says. “Global butter demand is growing at a 7% pace. The Class IV market for butter is above the Class III market for cheese for the first time since 2019.”

He notes that global cheese consumption is steadily increasing, and that will soon lead to rising cheese prices globally.

The anticipated higher price of milk comes at the cost of a reduction in cow numbers. But high cull cow prices make this an opportune time to thin the dairy herd, especially with high feed prices expected to continue through 2022.