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Northeast: More favorable price outlook, but uncertainty abounds

By on March 9, 2022 0

According to Christopher Wolf, dairy economist at Cornell University, the 2022 outlook for dairy in the Northeast calls for much higher milk prices, but also a lot of uncertainty.

“It’s been the most uncertain year I can remember,” said Wolf, who participated in Farm Credit East and Pennsylvania Center for Dairy Excellence webinars in January.

Dairy farmers face increasing costs for many inputs, which affects their ability to produce milk. Costs for typical dairy rations haven’t been this high in eight to 10 years, Wolf said, contributing to stagnant growth in milk production per cow as producers seek to reduce ration costs.

“When we look at what’s contributing to inflation year over year, the main one is energy,” Wolf said. This impacts everything from the cost of utility and fuel bills, to fertilizer, to milk transportation and the transportation costs of food delivery.

“Even though we’re looking at the highest farmgate milk price in maybe eight years, that doesn’t necessarily mean it’s the highest margin,” Wolf said.

Here are some numbers

Geographically, this article by Progressive dairy productsThe “State of Dairy” series focuses on states affected by the Northeast Federal Milk Marketing Order (FMMO). This covers New England, New York, Pennsylvania, and the mid-Atlantic states, down to Maryland and Virginia. According to the semi-annual USDA Cattle Report, the number of dairy cows in these states begins in 2022 at about 1.394 million, down about 20,000 from a year ago. The largest year-over-year declines are in New York and Pennsylvania, each down about 5,000 head.

As elsewhere, 2021 has been a two-part story: an increase in cow numbers and milk production, followed by a slowdown in the second half. According to the USDA’s preliminary estimates, all states in the region except New York saw small declines in milk production year over year. Even with slight growth in New York, it has slipped under Texas as the fourth largest dairy producing state in the United States.

In addition to cow numbers, Wolf identifies three major factors affecting dairy production in the region: weather, feed costs and basic surplus programs.

The Northeast did not experience the same moisture shortages as western growers; in some cases, the opposite was true. While overall hay and forage production increased, quality was variable, which impacted prices for premium alfalfa hay. Over the past two years, weighted average prices for dairy-grade alfalfa hay in New York and Pennsylvania have been higher than in any other of the seven largest dairy-producing states.

Northeast: Costs are a concern

Christopher Laughton, director of Knowledge Exchange at Farm Credit East, said milk price optimism is tempered by inflation in input costs, particularly for feed and labour.

With its recent merger with Yankee Farm Credit, Farm Credit East’s service area now covers Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. While most dairy farmers in the region grow significant portions of their own feed, rising costs are a concern, Laughton said.

Government payments will be much smaller in 2022 than they were in 2021 and especially in 2020, Laughton said.

“Basic surplus programs are an important factor for many growers, not just for those who might want to make major expansions, but also for those who want to gradually increase production,” Laughton said.

A “vigilant” attitude in Pennsylvania

For Jayne Sebright, executive director of the Center for Dairy Excellence (CDE) in Pennsylvania, dairy farmers in Keystone State are “vigilant”.

“With milk markets showing optimism in January and with feed prices softening slightly, there is cautious optimism that this could be a positive year for dairy farmers,” he said. she declared. “However, limited access to non-liquid milk markets continues to be a challenge, with co-operative grassroots surplus programs in place and independent dairies struggling to stay afloat. Farms that want to develop or expand their dairies cannot do so because they cannot find a market for their milk.

Among other concerns is the continued struggle to find good quality labor as the Latin American workforce continues to be stretched and there is a shortage of qualified candidates for middle management positions. There is also concern for the next generation.

“We have a lot of small, multi-generational farms here in the Commonwealth, and these farm families continue to need guidance and help as they navigate through this transition and succession plan,” Sebright said.

Maryland and Virginia positioned for growth

Lindsay Reames, executive vice president of sustainability and external relations at the Maryland & Virginia Milk Producers Cooperative, said the co-op just completed a “historic year” of growth in 2021. “We see our dairy farmers riding this wave of growth and have an optimistic outlook for their dairy businesses in 2022,” she said.

“COVID-19 continues to present opportunity and create disruption for our co-op,” Reames said. “The labor is short and the transportation is tight. Our farmers are seeing increased costs and decreased availability of the inputs needed to keep their farms running smoothly. »

Having won more than $11 million in grants to invest in on-farm sustainability projects and programs in 2021, Reames said the co-op is in a unique position to tell the story of American dairy. “The story of small, family-run operations with an eye for animal care and sustainability resonates with our customers and the end consumer,” she said.

processing capacity

Positioned as a buffer between excess milk production in the North East and milk production shortfalls in the South East, MDVA’s diverse portfolio of five processing plants meets a growing demand for dairy products. As such, Reames said MDVA’s seasonal core program does not limit herd or production expansion.

Further north, this is not the case. Wolf notes that production above processing capacity has resulted in a higher percentage of milk dumping in the Northeast FMMO, especially during the spring hunt. Many of the same factors affecting producers impact processors as they struggle to match milk supplies with processing and marketing capacity and seek to control balancing costs. Labor shortages prevent milk processing plants from adding shifts, creating backlogs and limiting the availability of milk carriers. When combined with the potential for higher interest rates, the impact of inflation can extend to the cost of working capital to deal with supply chain issues.

“If you’re a business that needs more cold storage capacity to handle fluctuating demand, increases in interest rates make it harder to address that issue,” Wolf said.

“The Transformers are clearly having a hard time keeping up,” Laughton said. “The bottleneck seems to be capacity rather than demand. Many factories have not been able to operate at full capacity due to staffing issues, and trucking and logistics are another challenge.

Risk management

While healthier margins are forecast for 2022, the downside risk on the price of milk, particularly related to Class III milk, and the potential for upside risk on higher costs, create uncertainty , said Wolf. Stopping short of advising growers on specific tools, Wolf urged growers to focus on risk.

“I suggest you approach this from a purely risk management perspective and not from a profit maximization perspective,” Wolf said.

With COVID-related government assistance payments being much lower in 2022 than in 2020-21, insurance programs like Dairy Margin Coverage (DMC), Dairy Revenue Protection (Dairy-RP) and the livestock gross margin for dairy products (LGM-Dairy) could be more important. important than ever to consider as part of a farm’s risk management strategy, Laughton said.

According to Zach Myers, risk education manager at Pennsylvania CDE, the financial health of Pennsylvania producers heading into 2022 is highly dependent on the use of risk management tools and government assistance during the pandemic. Those who adopted risk management programs were able to invest in their dairies and repay their debts, which improved their balance sheets. Others more resistant to the use of risk management are in difficulty.

So far, DMC registrations have been lower than in the past, and the USDA has extended the registration period to March 25. The participation of producers in Maryland and Virginia in the program is supported by state programs that help fund premium costs.

FMMO reform

“There is a growing drumbeat in the region for FMMO reform,” Laughton said. “The deal falls through, however, when the discussion moves to what this change should look like. There is widespread dissatisfaction with the status quo, but it is difficult for policymakers to support FMMO reform. while there are many different opinions on what should be done.

According to Myers, the region is unique in that it has the most balanced use of milk class than any other region in the country. At the same time, significant amounts of Class I usage in Northeast and Middle Eastern FMMOs left growers sensitive to the change in the “Class I Mover” formula. He shared estimates that the change cost Pennsylvania growers about $1 per cwt from May 2019 to December 2020.

“Producers in this region want any potential changes to the Class I price calculation, or any price changes to other classes, to be fully considered before going through any legislative or USDA hearing processes in order to ensure that the possibility of unintended negative consequences is minimized,” says Myers.

DRAWING: Artwork by Corey Lewis.

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