The most often asked issue is when milk prices will begin to rise considerably and return to levels seen in 2022. We did have record milk prices in 2022, and although achieving those highs may be difficult, it would be good to see prices far higher than they are now. There are several opinions about what it will take to see dramatically increased milk prices, with the majority of them being plausible to some extent.
Culling surged significantly in late 2021 as low milk prices drove farmers to sell animals quickly to improve revenue and decrease the expenditure of feeding cattle that were not top performers. The milk supply did not tighten to the point of scarcity, but the idea of a shortage pushed milk prices upward. Buyers of dairy products were worried about the possibility of a supply shortage and wanted to ensure that they would have enough goods to complete orders. As a result, for a few months, there was a purchasing frenzy, driving milk prices to all-time highs. The culling slowed, and the anxiety abated, with cow numbers staying lower than a year earlier, but increasing from month to month. This alleviated the anxiety, and milk prices have subsequently fallen.
The degree of culling has not grown as expected this time because farmers have been hanging onto cows despite high cull cow prices. One explanation might be that most of the poor producing cows have been slaughtered, leaving just cows who are too excellent to cull in the stalls. Another factor is that replacement numbers have tightened and are not as plentiful as they once were, and what is available commands exorbitant costs. This puts the industry in an intriguing situation. As you may recall, when sexed sperm became available, it was readily adopted since farmers constantly needed more heifers for replacements. Over time, there was an oversupply of heifers, which resulted in more cows and better milk yield.
There has recently been a lot of interest in beef on dairy. meat prices were rising owing to significant culling of cattle due to drought, along with increased demand for meat. Dairy producers discovered that marrying lower-end cows to beef bulls resulted in significant price increases for the calves. As a result, the popularity of beef on dairy soared and continues to grow. However, the impact is being seen as a consequence of tight heifer replacements, which may be reducing culling activities and limiting some farms’ capacity to grow. We are currently witnessing a significant fall in beef cattle prices and a significant spike in heifer replacement and cow pricing. Over time, this will lower the value of meat on dairy calves.
However, it is quite probable that milk prices would rise since replacements for killed cows will be scarce, and milk supply will fall. According to the July Cattle Inventory data, the proportion of heifers to milk cows was 38.8%, the lowest ratio since July 1997. In compared to prior years, the January report might indicate an even narrower figure. This may ultimately cause a shortage of milk, resulting in increased milk prices. If demand recovers at the same time, we may witness record prices again, like we saw in 2022. As a consequence, farmers will continue to breed for heifer calves, which may be valued more than beef calves as farmers seek to increase their heifer inventory. The problem is that these cycles do not shift overnight and will take many years to turn. As the market adapts, there may be some nice milk prices in the future.
