We are experiencing one of the more unique business climates in modern American history. With price inflation running at a generational high, interest rates will begin climbing in an attempt to create a soft landing . . . without causing a recession . . . for what has become an overheated economy. How this situation unfolds will determine if the bulls and their higher prices or the bears and their lower prices will win out when it comes to domestic and global dairy demand.

While many analysts point to the late 1970s and early 1980s as an example for the inflation and interest rate environment currently upon us, the post-World War II era provides a better example. That’s because up until the Russian invasion of Ukraine, most of the recent price inflation was induced by the supply chain disruptions and product scarcity.

When prices climb at warp speed due to supply scarcity, buyers can make some unpredictable purchasing decisions. In some instances, they will continue to buy no matter what the cost, or in other cases, they may push out purchases if they forecast that supply channels will fill up and prices will begin to fall. On the flip side, retailers could push out purchases due to rising costs. Alternatively, they could continue to build up inventories since the on-time delivery rate has fallen to an abysmal 50%, and not having product to sell is even more devastating than the higher prices.

In the case of the Kroger Company’s dairy case, building inventories has won the day. Packaged butter is a prime example as managers want to ensure adequate supplies for the fourth quarter when butter sales double during the Thanksgiving and Christmas holiday season. That’s how a major grocer with 2,800 stores is handling the situation.

On the more bearish side, China has started to slow its dairy product purchases. In fact, Chinese buying interest on New Zealand’s Global Dairy Trade recently fell to the lowest level since 2015. That has been induced by COVID-19 lockdowns in its two largest cities, Shanghai and Beijing. As the world’s largest dairy product importer, China will have a major impact on global dairy prices and the entire world economy.

Two stories . . . bulls or bears . . . could be written for dairy demand for the remainder of the year. Whatever scenario unfolds, all of us who produce milk must continue to implement cost controls. Those dairy farmers who prepurchased feed and fuel last fall are now experiencing healthy margins for their milk. Those who did not contract major inputs are faced with a $23-plus cost per hundredweight scenario.

No matter your situation, given current crops forecasts, everyone will face those higher input costs once current feed inventories run out. That makes the answer to “Will bulls or bears pull more at dairy demand?” even more important.