2018 was a year of challenge and change for the Hoosier dairy industry and will continue to do so in 2019. Co-ops breaking contracts, new production plants, and continued low prices made 2018 a difficult year for most dairy operations. Many of those same challenges will continue into the new year, says Ben Laine, senior economist with CoBank. He says the traditional price circles we have had in the milk market are a thing of the past.
“In the past, we have seen some price recovery about every 3 years; but, today, we have not seen this since 2014. The larger operations are able to handle the lower prices longer, and this will stretch out the lower prices for a longer period of time.”
Laine said this will be especially hard on small operations who are milking hundreds of head rather than thousands.
“I think the smaller operations are going to have a hard time competing on a cost basis with the large scale commodity producers, but they will still have opportunities in local markets or by producing high value specialty products.”
Milk prices for 2018 never saw a major rally and held below breakeven levels for many dairy farms around the country throughout the year.
The price outlook for 2019 looks slightly better, but probably isn’t the level that producers would like to see. When combining Class III and Class IV milk prices for 2019, the total price averages about $1/cwt higher than last year, says Brian Rice, founder of brokerage firm Rice Dairy. “No major rally,” Rice says of the forecast. “A lot of times it is normal for the forward curve to carry a premium to the spot market, especially when we are low where we are (on price).”
Despite the challenges the dairy industry is facing from plant-based milk products, Laine is optimistic that demand for dairy products will continue to grow. But getting the capital to increase production may be difficult.
“Lenders really want to make sure there is a place to put that milk.” He added that expansion just for the sake of expansion will no longer be possible.
The ISDA’s strategy for Indiana dairy remains in place and is designed to increase the milk processing capacity of our state and keep more of our milk here at home.