In recent weeks, projections for higher milk prices have been frequently discussed. USDA’s most current monthly outlook projects the All -Milk price for 2022 at $22.60, a 21 % jump relative to 2021. But as all in the industry know, costs are up, too. In fact, the reality of rising numbers on both sides of the profitability ledger have left many uncertain about the net returns outlook.

Meat prices up, too

One additional factor that should support dairy industry profits into the medium term are expectations for higher cattle prices. While dairy cow inventories remain above levels from as recently as 2019 despite recent reductions in numbers, the U.S. beef cow inventory is set to decline for the third consecutive year. This will contribute to the fourth year of a declining calf crop, setting the stage for declining beef production in the medium term.

With beef demand remaining very strong in many international markets that are critical to U.S. beef exports as well as solid sales domestically, the outlook for cattle prices is quite bright for the next few years. In fact, USDA is currently projecting fed steer prices to grow 12% in 2022, the largest percentage gain of the livestock products with monthly projections.

Even as overall beef herd numbers have declined, cattle placements into feedlots remained elevated during 2021 as drought conditions persisted over much of the western U.S. and positive cattle feeding returns yielded a steady demand for feeder animals. But there is a limit to just how long cattle slaughter numbers can defy a shrinking national herd. This year is likely to be the year in which animals available for slaughter begin to decline.

While USDA estimates that 2022 cattle prices will be 12% above the 2021 level, and the federal agency’s longer term projections show even further growth in cattle prices over the next decade.

Getting back to dairy

There remains much uncertainty as to how higher milk prices and higher input costs will affect dairy bottom line profitability in 2022. But don’t discount the fact that developments in the beef sector could play a very positive role in dairy industry finances. Those higher priced dairy-beef calves and cull dairy cows will be another positive and growing revenue opportunity for the next few years.

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(c) Hoard's Dairyman Intel 2022
January 17, 2022
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