Despite falling below the $9 per hundredweight (cwt.) in both August and September, the average margin for the Dairy Margin Coverage (DMC) program ended the year at $10.73 per cwt. We must go all the way back to 2014 to find another year that yielded a higher milk price after feed costs.
Yet, few dairy producers would argue that 2022 was the most lucrative of the past eight years. The major reason for this assessment has been the sharp climb in the nonfeed costs portion of the milk production. Though we will not receive the official tally of 2022 milk production costs from USDA’s Economic Research Service (ERS) until early May, the agency’s recent release of national farm income accounts gives us some indication of cost increases incurred by agricultural producers in 2022, as well as what might be expected this year.
The milk revenue blues
Total cash production expenses for the entire U.S. farm sector grew by 19% in 2022 and further growth of 3.3% is projected for this year. Though we must wait until May to see the 2022 cost escalation in milk costs of production, assuming even a 15% increase in production costs would leave 2022 as only the fourth best year in terms of All-Milk price less cash expenses since 2014. If dairy costs grew by 17% or more, it would just be the fifth best year of the past eight. Either outcome tells a far different story than focusing only on the DMC margin.
According to ERS, the largest components of nonfeed cash costs for dairies in 2021 included:
- Hired labor, accounting for 35% of total nonfeed cash costs
- Veterinary and medicine, 12%
- Repairs, 12%
- Fuel, lube, and electricity, 11%
- Custom services, 11%
- General farm overhead, 10%
Overall, nonfeed cash costs totaled $6.52 per cwt. and accounted for 31.6% of total cash costs.
No two dairy operations are the same, and analyzing national benchmarks only tells a portion of the story. Yet, it is noteworthy to consider that last year’s highest annual average DMC margin since 2014 will only likely translate to a middle of the road ranking for 2022 once all cash costs are considered. This analysis should provide more food for thought as industry participants and legislators work to produce the dairy safety net that will be included in the next farm bill.
