Making predictions in pretty much any business can be a hazardous undertaking, and that’s true for the dairy business as well. But there are a few predictions we feel reasonably comfortable making for the dairy industry heading into 2022.
First of all, we expect discussions about the need to reform federal milk marketing orders to heat up in 2022. Despite widespread dairy producer dissatisfaction with how the new (as of May 2019) Class I formula performed in 2020, and ongoing dissatisfaction with everything from depooling to the continuing use of dry whey in the Class III price formula, nothing on the federal order policy front actually changed in 2021.
There were at least a couple of notable developments on the federal order reform front, however.
First, the Senate Agriculture Committee subcommittee with jurisdiction over dairy policy held a hearing in September on the growing need to modernize the federal order system.
And less than two months after that hearing was held, three US senators introduced the Dairy Pricing Opportunity Act of 2021, which would require USDA to initiate national hearings to review federal orders within 180 days after enactment of the legislation.
While we don’t expect that legislation to get much if any traction in the Senate next year, we do expect discussions and debate to heat up over another legislative undertaking: the next farm bill. Many provisions of the 2018 farm bill expire in 2023, so 2022 is certainly not too early to begin shaping the next farm bill.
And from a dairy industry perspective, a farm bill section requiring federal order reforms might be the only way such reforms are accomplished. There is precedent for this: the 1996 farm bill included a section on the consolidation (to not less than 10 and not more than 14 orders) and reform of federal orders.
The problem with waiting until the 2023 farm bill to start the formal process of reforming federal orders is that such a delay would likely mean that any federal order reforms probably wouldn’t be implemented until around 2026. After all, the consolidation and reform required under the 1996 farm bill didn’t take effect until the beginning of 2000.
In the area of dairy prices, 2022 might see a return to more extreme volatility than was experienced in 2021. There are numerous ways of looking at this, but we’ll mention just a couple.
First, the CME cash market price for 40-pound Cheddar blocks here in 2021 (as of Thursday) has ranged from a low of $1.4575 per pound back on June 9 to a high of $1.9800 a pound on Dec. 30. That, of course, stands in stark contrast to 2020, when the block price ranged from a low of just $1.00 per pound to a high of $3.00 per pound.
Given recent trends in milk production, milk cow numbers and output per cow, not to mention domestic and international demand, we wouldn’t be all that surprised to see the block market rise above $2.00 per pound sometime in 2022. So, if the block price reached, say, $2.30 a pound sometime during 2022, all it would have to do is drop below $1.77 a pound at some point to exhibit more volatility than was the case in 2021.
There is some precedent for something along these lines to occur in 2022. The last time the block price was above $1.80 per pound at the end of the year (not including 2019, since that was followed by the unprecedented, pandemic-upended 2020) was in 2013, when blocks ended the year at $2.00 per pound. That was followed by an eventful 2014 in which the block price set numerous new record highs, including $2.4225 per pound in early April and $2.4500 per pound in mid- September, before dropping down to $1.4950 in the final week of the year, for an eye-opening price range of 95.5 cents.
Reflecting the relative lack of volatility in cheese prices in 2021, the federal order Class III price during the first 11 months of the year has ranged from a low of $15.75 per hundredweight in February to a high of $18.96 per hundred in May — a range of $3.21 from low to high. By contrast, in 2020, the Class III price ranged from a low of $13.07 per hundred in April to a high of $24.54 per hundred in July, a range of $11.47 per hundred.
If cheese prices end up being more volatile in 2022, the Class III price would naturally reflect that volatility. Add in the fact that dry whey prices are ending the year above 70 cents per pound, and it’s looking at least somewhat likely that milk prices will be more volatile in 2022 than they have been in 2021.
Speaking of money, the dairy industry can expect money to continue to flow from the federal government to the industry in 2022, thanks to various bills passed in 2021 and 2020. Just two weeks ago, US Ag Secretary Tom Vilsack announced that USDA is providing up to $1.5 billion to states and school districts to buy food, including dairy products. Earlier this month, Vilsack announced that USDA is deploying $100 million under the new Food Supply Chain Guaranteed Loan Program to make available nearly $1 billion in loan guarantees.
Finally, we expect the last two Merriam-Webster Words of the Year — pandemic in 2020 and vaccine in 2021 — to continue to garner headlines and controversy, and continue to impact the dairy and pretty much every other industry in 2022. Those impacts could range from slowdowns in food service sales to more panic buying by consumers.
If nothing else, 2022 could bring about some combination of what the dairy industry experienced in 2020 and/or 2021.
