Inflation.
There isn’t a day that goes by in which that word doesn’t grab a headline these days. It’s at a new 40-year high at 7.9%.
Used cars and trucks have vaulted 41% when comparted to last February. Gasoline jumped 38%, piped utility gas leapt 24%, and new vehicles moved up 12%. That’s according to data from the U.S. Labor Department.
Just when it appeared that inflation might plateau, Russia invaded Ukraine and sent inflation to new heights not seen in over a generation. This global impact and the resulting price inflation numbers will roll in once the March reports become available.
But milk price inflation at 55%. Is that real?
When it comes to USDA market forecasts, it’s real.
With a forecast of $15.30 Class IV in 2022, USDA’s August 2021 market forecast considered all the known dairy market factors at the time. Then came tight global milk supplies.
By October, USDA economic forecasters moved the 2022 Class IV forecast to $17.15 per hundredweight (cwt.). That was a nickel higher than the $17.10 projection for Class III. From that moment in time, Class IV never looked back at its Class III milk price cousin.
A projection on the same commodity over 60 days and a $1.85 difference in opinion.
Climbed to a $23.70 projection
As milk production and resulting supplies receded in both New Zealand and the European Union, milk price forecasts moved up every month since the August estimates by USDA in its World Agricultural Supply and Demand Estimates. By January, Class IV moved past $20 and this March it approached $24, settling at $23.70. When considering August’s 2021 Class IV projection was $15.30, that’s a 55% gain to reach the $23.70 projection.
Class III, which has long led values over Class IV, moved from $16.15 in August to $21.65 by March. That updated forecast calls for a 34% gain in milk prices when comparing forecasts.
It’s not surprising that the All-Milk price, a combination of both Class III, Class IV, and other factors fits in the middle. From August 2021 to this March, it moved up 40% to reach a $25.05 projection for the 2022 All-Milk price.
If these values hold, it should be a good year for dairy farmers despite the runs on the expense side of the ledger.
What about price-risk mitigation?
Markets rise and markets fall. How will 2022 play out?
No one knows for sure.
Will the global conflict spill over the borders of Ukraine?
Will there be a drought in a major agricultural region?
Will this pandemic continue to recede?
No one on planet Earth knows the answers to those questions. Given that situation, milk price mitigation strategies are more important than ever.
Dairy Margin Coverage (DMC) protection sign-ups for 2022 close on March 25.
That’s one option.
Dairy Revenue Protection (Dairy-RP) is another. Both essentially set floors for a farmer’s milk price and allow producers to capture the market upside in these inflationary times.
What goes up can go down.
What happens if milk prices recede 55% back to August 2021 projections?
That’s an important question to consider, given the 55% price inflation to forecasts for 2022 Class IV milk in the past seven months.
