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2022 Dairy outlook update: Feed costs continue to rise

Reference: FCC

This is the first of three quarterly updates to our 2022 Outlook for Canada’s Dairy Sector published in January. Last week we updated our grains, oilseeds, and pulses outlook, and next week we’ll update the outlooks for cattle and hog.

Much has happened in the three months since we published our dairy outlook at the beginning of February. The war in Ukraine, which has impacted so many lives, rocked grains and oilseeds, fertilizer and energy markets. As announced by the Canadian Dairy Commission (CDC), a higher butter support price became effective on February 1st, increasing the farm gate price by 7-8% between January and February, depending on the region. The jump in the farm gate price percolated into the price of dairy products at retail. Nonetheless, consumption volumes remained strong even to the point that the P5 (Eastern provinces except for Newfoundland and Labrador) announced incentive days for May (1), June (1), August (1), September (2), October (2) and November (1) and a 2% quota increase effective April 1st. The story is, however, different for Western producers. The Western Milk Pool (WMP) is facing a milk surplus and, for that reason, announced a zero credit-use restriction policy which became effective on March 1.

Table 1 summarizes revenues and costs data for 2020 and 2021 and our latest forecasts for 2022. From our January outlook, we revised slightly upward gross revenues to P5 farmers from the January outlook. Revisions were more significant for WMP farmers after farmgate prices significantly jumped in March. The increase comes from the end of milk disposal caused by floods and heavy snowfalls in British Columbia in the preceding months. We increased our feed costs forecasts for 2022 by about 10% following the rise in commodity prices caused by the war in Ukraine. Note that the feed cost estimates are opportunity costs, which means that farms able to grow their feed can do so at a lower cost. We made small upward adjustments to our forecasts for other variable costs... Read More