Finding Balance in the Milk Price Equation

Basic economics tells us that our milk price is based on the balance of supply and demand. When supply is higher than demand, our milk price goes down. When demand is higher than supply, our milk price goes up. In 2022, dairy farm families benefited from a demand that was higher than supply, with year-over-year growth in our US milk production up just 0.2 percent to 226.6 billion pounds in 2022. However, looking ahead to 2023, analysts expect that equation to change, with milk production ramping up and inflation starting to place downward pressure on dairy product consumption.

Already, we are starting to see dairy product stocks building, with butter stocks posting the first year-over-year increase in 16 months to 216.3 million pounds in December. Cheese stocks were up 0.2 percent year-over-year to a new December high of 1.445 billion pounds. At the same time, US consumption of fluid milk continues to trail year-ago levels, falling 4 percent year-over-year to 44.5 billion pounds in 2021.

With dairy product stocks building and year-over-year milk production growth up closer to 1 percent in the last six months of 2022, milk prices are expected to fall in 2023. USDA is currently estimating a $21.60 per cwt. all-milk price this year, down nearly four dollars from the all-milk price of $25.55 per cwt. in 2022. The decrease in price is attributed to an expected weaker domestic demand and more price pressure in the international markets.

If we set our sights overseas, international markets continue to play an increasingly significant role in the mailbox price dairy farm families receive for their milk. In the past two decades, US milk production has grown by more than 25 percent. However, per capita consumption – or domestic consumption – has only grown by 11 percent. At the same time, dairy products moving overseas are five times what they were in 2000, going from 500,000 metric tons in 2001 to nearly 2,500,000 metric tons in 2022.

In 2022, dairy exports were equivalent to more than 18 percent of the nation’s total milk supply on a milk solids basis. Dairy product exports surpassed the annual record in milk solids exported set in 2021, making last year the third consecutive year for record volume growth. The number of dairy products moved overseas totaled 2.4 million metric tons, up 5 percent from 2021, with the value of those exports estimated at over $9.6 billion, up 25 percent from the previous year and the first time that annual export value surpassed the $8 billion and $9 billion thresholds.