A new year brings excitement and opportunity, but it can also come with apprehension, especially if you are a business owner. In a recent episode of the Parlor to Plate podcast, Ever.Ag experts talked about what their customers are anxious about going into 2024.
“Markets have been quiet in some respects, but there is lurking danger and lots of concerns,” said Phil Plourd, president of Ever.Ag, to kick off the conversation. For dairy producers, downward movement in the Class III futures price has been top of mind.
“A lot of dairy producers are concerned right now, and unfortunately, that mostly comes back to milk prices,” said analyst Colin Kadis. “There is no doubt that 2022 was one of the greatest years producers have ever seen, even though costs were higher.”
He continued, “A lot of people expected 2023 to be hard, but it is looking like the beginning of 2024 is also going to be difficult, especially from a Class III standpoint.” He shared that costs of production for Western dairymen are somewhere around $18 per hundredweight of milk, which is more than the expected milk price per hundredweight in early 2024.
Plourd noted the positive movement in the Class IV futures but agreed that the Class III prices are sobering.
Working on the commercial side of risk management with manufacturers, end-users, and cooperatives, Brian Fletcher said the lower dairy prices are welcomed. However, what is not welcomed is that global and domestic demand are lower in general for some of the main dairy product categories.
“We are at a point with lower supply and demand, and the big concern at this point in time is if we see a resurgence in demand, we are in a supply state that is not firing on all cylinders,” Fletcher said. “There is concern that if we start to see any change there (in demand), we are at a point where we could see some elevated prices.”
He added, “The other challenge is that demand in general is pretty hard to measure on a forward-looking basis. It’s hard to forecast where and when that turns around.”
Assuming demand will stay “so-so to mediocre,” Plourd said, “It’s going to take a lot more supply erosion to get things going from a price perspective. I don’t think many dairy farmers are going to be excited to sign up for that, but you have to have some liquidation if demand is flat and supply has to do all the work.”
To that point, Kadis concluded, “From the dairymen’s perspective, I think they thought they liquidated sufficiently six months ago, so to still be in this position is a head fake.”