*This is the nineth article in our 2022 Southwest Economic Outlook series. Hear from Oklahoma State University and Texas A&M AgriLife Extension economists about the 2022 outlook. 

After milk prices showed some promise early in 2021, falling milk prices and higher production costs led to fewer milk cows and milk production later in the year. Like just about all of the economy, the rippling effects of the pandemic led to more uncertainty and volatility in milk markets. This year brings the opportunity for some higher milk prices. 

The number of dairy cows in the U.S. hit 9.51 million head in May 2021, the most in more than 20 years. When combined with increasing production per cow, total milk production almost hit 20 billion pounds in May.  Since then, milk prices have struggled and dairy cow culling has jumped up above year-ago levels. By October, the dairy herd had declined to 9.4 million, 14,000 head below last October. More important, milk production declined to below a year ago, as well. 

High feed costs will continue to pressure profits this year. The relative balance of feed costs and milk prices led to 10 straight months of DMC payments (at the time of this writing) due to income over feed cost margins falling below threshold levels. But, rising costs other than feed costs will pressure profits beyond what is implied by income over feed cost calculations.  Drought in the west will impact production and costs throughout the region. 

Dairy use of beef on dairy crossbreds continues to grow and provides additional calf value to the dairy industry. The industry is learning about the best genetics combinations and the management of these calves in feedlots. The value and importance of the crossbred calves will continue to grow in 2022.    

Nationally, the new year began with fewer dairy cows than last year and restrained growth in milk production. In the Plains, growth has continued with more cows and milk production. Milk processing infrastructure continues to be added fueling overall industry growth.  Milk production is likely to grow this year, but by less than 1% over 2021.  Milk prices are also expected to increase above 2021 levels based on production expectations. The U.S. All Milk price may average more than 5% above 2021. While cheese prices languished late in 2021 at about $1.75 per pound almost exactly the five-year average, butter, non-fat dry milk, and whey prices surged late to start 2022 more than 30% higher than last year.   

Higher production costs, slow growth in milk production, but also good demand for dairy products hold the promise of higher milk prices this year than last. 

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