Rising US dairy prices set to reverse declining producer profits

By Elizabeth Schroeder | 29 September 2024 | 11:00 am

The trend of declining margins for US dairy farmers are being reversed, due to rising dairy and milk prices in that country.

According to the US Department of Agriculture’s (USDA) September outlook report, this trend was being driven by shrinking production levels, as well as falling costs of animal feed such as maize, lucerne hay, and soya bean meal.

AgricultureDive.com reported that USDA researchers had consequently revised estimates for the wholesale milk price up by US$0,75 (about R12,92) for the year to US$23,05 (R397,15) per hundredweight. In the US, the term ‘hundredweight’ refers to a unit of 100 pounds (45,36kg).

In addition, the report stated that the US national dairy herd had declined by 5 000 head from last month’s forecast, while total US milk production fell by 400 million pounds (181 million kilogram).

According to AgricultureDive, the supply-demand equation was therefore favourable for farmers who had struggled with returns in 2023 due to high feed and input costs.

“The farmer dairy margin was US$12,33 (R212,45) per hundredweight in July, the highest of 2024 so far, and nearly US$9 (R155) higher than a year ago,” the report said. “Meanwhile, milk production totals are on track to decline through 2025, driving prices up further.”

Tight supplies of heifers had reportedly further weakened growth expectations for the first half of 2025, despite improved incentives for farmers to increase their herds. USDA data indicated that the US national herd was forecast to reach 9,36 million head next year, which was unchanged month-on-month.

The higher prices were, however, expected to result in dairy products being less competitive in both the domestic and international markets.

The USDA’s latest outlook report further stated that the recent decline in the US food service sector, particularly restaurants, could also be underlying the decline in the domestic consumption of dairy products.

“The National Restaurant Association’s Restaurant Performance Index (RPI) has been consistently lower in 2024 compared to the previous year, suggesting that restaurants are facing challenges such as reduced consumer spending, rising costs, and shifts in consumer preferences, all of which are likely impacting demand for dairy products from the foodservice sector,” the report said.

On the other hand, US consumer price index data indicated that consumers were spending more on milk and dairy products “as the overall at-home food category softens”.

The report further said that higher profits could encourage dairy farmers to either expand their herds or increase investment in production facilities to capitalise on current consumer trends.

AgricultureDive reported that in previous years, farmers had adapted their operations to increase the production of organic milk and other premium products, for example, to remain sustainable and for other business considerations.