2024 Dairy Market Situation and Outlook

2024 Milk Price Outlook

Studying dairy farm profitability over the past 23 years reveals that there are three factors highly correlated with high profit versus low profit years. The first is relative growth in milk supply. Long-run trend is 1.7 to 1.8 percent and growth at that level has resulted in average farm milk and profit since 2000 (Table 1). Slow milk production increases, whatever the cause, result in higher milk prices while above trend milk supply growth has the opposite impact. The second factor is change in quantity of product exported compared to the previous year. High milk prices are related to large increases in exports over the previous year with those years having an increase of four times the average increase. In contrast, low milk price years were associated with much lower growth in export quantities. The third factor is ending stocks of dairy products (in milkfat terms). When ending stocks finished below the beginning value milk prices at the farm level were strong. If stocks grew above trend levels—recall that consumption was increasing this entire period so we would expect stocks to grow to maintain stocks to use ratios—then milk prices were low. To be clear, these factors are jointly determined with milk prices—that is a draw down in stocks happens when demand is strong. These factors provide a guideline for assessing potential market directions for 2024.

Table 1. Factors Related to Farm Milk Price and Profit 2000-2022

Domestically, the milk production response is likely to remain sluggish again for the coming year meaning that price variation will likely be a function of market demand. Domestic demand has been solid if unspectacular. Core inflation returned to Federal Reserve target levels in the second half of 2023 while unemployment remained low and real wages grew. Meanwhile unemployment has consistently remained below four percent. It looks increasingly likely that a long-dreaded recession may be avoided barring some external shock such as a major geo-political conflict. If inflation continues to moderate to target levels and the labor market does not show signs of overheating, the Federal Reserve may begin to cut the benchmark interest rate in 2024 which should help greatly with farm and household interest costs moving forward as well as supporting consumption spending. 

With, perhaps, less risk on the domestic front at the current time, the potential for milk price variation is more focused in world markets. In the past couple of decades, the growth in dairy exports has helped support a growing milk production where we have consumed virtually all of the butterfat domestically and most of the dairy proteins but exported excesses. The result is that the US dairy product prices for the most heavily exported products—nonfat dry milk, dry whey and lactose—are highly correlated with world prices. US dairy product prices for the major dairy commodities have been at world prices for years. Total value of US dairy exports from 2000 through 2022 are depicted in Figure 1 along with the specific values of exports to Canada, Mexico and China. One aspect that stands out is that there were peaks in 2007, 2011 and 2022. It is not a coincidence that these years were high farm milk price and profit years. Although somewhat obscured by the scale of the figure, China was of key importance in hiking export demand for US dairy products particularly in 2014 and 2022. At the current time China seems mired in economic doldrums with a large housing price bubble and below expected economic growth. As such it seems unlikely that China will be the source of a surge in export demand in the near future. At the other end of the spectrum, the Mexican economy has recovered from issues around the pandemic and provides a strong source of demand for US dairy products.

Figure 1. Value of US Dairy Exports, 2000-2022

With respect to international milk production, both New Zealand the European Union continue to search for a way forward to balance milk production with environmental regulations. Through November 2023, EU milk production was essentially flat year over year at +0.1% while New Zealand milk production was -0.7% compared to 2023. At the current time, US milk prices are below the EU but above New Zealand. Thus, we expect US producers to compete well with the EU for cheese markets this year but may struggle in direct competition with New Zealand.

The other aspect of supply that is closely related to milk price outlook are dairy product stocks. Total cheese stocks in December 2023 were down 0.2 percent over a year earlier. American cheese stocks (cheddar) were up 1.5 percent over a year earlier. Butter stocks finished 2023 down 7.9 percent from a year earlier but in line with where they finished 2021. It’s worth noting that this level to led directly into high Class IV prices for 2022. Given the new cheese capacity scheduled to come online, it is likely that Class IV price will continue to be above Class III price.

As of the time of writing, the most recent USDA World Agricultural Supply and Demand Estimates (WASDE) report forecasts an All Milk price of $20/cwt along with a Class III price of $16.cwt and a Class IV price of more than $19/cwt. Meanwhile, current dairy futures prices are more optimistic (see table).

USDA is forecasting a corn price of $4.80/bu and soybean meal price of $380/ton as of this writing. Current futures prices are more bearish on corn and soybean meal prices. US corn yields set a record in 2023 and the carryout stocks were very large. Both markets are anxiously watching the crops in South America which could push prices in either direction.

The resulting margin forecast is for low initial margins to recover to above average margins in the second half of 2024. Current margins are not great but $20/cwt milk with $4.50/but corn is a whole lot better than $20/cwt milk price with $6+/bu corn which occurred in 2023.

Table 2. Milk and Feed Price Forecasts for 2024

Policy Update

The Federal Milk Marketing Order Hearing that began in August 2023 wrapped up at the end of January 2024. The Hearing addressed proposals ranging from Class I differentials to make allowances to what is included in weekly dairy product surveys. Part of this reflects the fact that the FMMOs are showing their age ad have not been updated other than individual orders since 2008. The process still has a ways to go, though, as there are many more months of revisions and comments before USDA will issue a decision that dairy farmers will vote on (perhaps through their cooperative). It will be mid-2025 at the earliest before changes will be realized.

The Farm Bill received an extension at the end of 2023 to avoid expiration of major programs. Look for a new bill towards the end of 2024. The Dairy Margin Coverage program for 2024 should be available soon and signup will be retroactive to January.

Dr. Christopher A. Wolf E.V. Baker Professor of Agricultural Economics  Dyson School of Applied Economics and Management Cornell University

Editors: Chris Laughton and Tom Cosgrove
Contributors: Dr. Christoper A. Wolf and Chris Laughton

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