It’s been a challenging year for U.S. dairy farmers, given high production costs and interest rates, but some relief is on the horizon in the form of lower feed costs, two analysts say.

“The cost of production has been a major factor this year. Feed costs have been high, interest expense has been high,” said Ben Laine, senior dairy analyst with Terrain.

Aside from a couple of terrible months, milk prices haven’t been that bad in 2023, he said. The real challenge has been profitability. All costs have been increasing, either from interest expense or inflation, he said during the latest “Dairy Download” podcast.

“I do think there’s going to be a little bit of relief in terms of … feed costs, not immediately but as we move through 2024, that should be a little bit better,” he said.

Lingering challenges

Some challenges will linger, but the Federal Reserve is starting to signal interest rates are going to start creeping down. Hopefully that will provide some relief as well, but a lot of costs are going to remain elevated, he said.

“So it’s a little bit of a higher cost environment,” he said.

That’s especially true for producers who don’t get the quoted full milk price because the basis has discounted producers’ milk checks relative to Class III and Class IV futures prices, said Sabrina Sharp, risk manager for Ag Business Solutions and a dairy analyst for Daily Dairy Report.

In the first half of the year, spot milk was selling at deep discounts throughout the Midwest, she said.

“Those spot milk discounts have gone away and yet we haven’t seen nearly as much improvement in the basis as you would expect,” she said.

“So I think there are a lot of producers, especially in the cheese states, that have been disappointed with their milk checks, and they really need to see this relief on the cost side of things,” she said.

Corn prices

There has been some relief in corn prices, down from $6 to $7 a bushel to $4.50 to $5 a bushel. That’s significant, she said.

“We have definitely seen relief on feed costs,” she said.

Soybean meal prices are close to where they’ve been for about three years, so less relief there but down from the highs, she said.

“Where we’ve seen a lot of improvement is in forage costs, particularly in the regions that had suffered from drought for several years,” she said.

In the year to come, producers should spend a lot less on feed than they did over the past 24 months, she said.