White House Doubles Inflation Forecast As Inflation, Labor Already Pressures U.S. Dairy Herd Numbers

The White House is doubling its inflation forecast this year. The Biden Administration is now projecting inflation to rise by 4.8% in the fourth quarter of 2021, up from the 2% forecasted in May. The increase in inflation forecast is due to supply chain issues that the Biden administration says continues to push up prices.

The White House's forecast for 2022 is more optimistic, with officials seeing inflationary pressures cooling off next year.

However, inflation is already starting to take hold on various segments of agriculture, including the U.S. dairy herd. CoBank says when you combine that with the labor shortage issue, inflation could continue to impact cow and milk productions the rest of this year.

"In the last couple of milk production reports, we've seen the cow numbers tick just a little bit lower. And it appears as though the inflation story is catching up now to dairy," says Tanner Ehmke, lead economist at CoBank. "Look at not only the feed costs, even though that alone is going to cause some concern for dairy producers, but look at all the other costs. We're talking about steel costs, aluminum, copper, lumber, cement, anything that's required to build a new barn, a new parlor, a new grain bin, or anything for construction. The cost of doing that now is not really going to pencil in at current milk prices. And then you've got the labor situation as well. So add all of that together and it's really hard to come up with a story that we're going to see growth in the cow herd going forward."

Pressure on Production Per Cow?

CoBank says the latest forecasts for dairy cow numbers show the herd has plateaued, which comes after several years of growth with the largest U.S. dairy cow herd since 1994.  And due to labor issues and inflation pressures, Ehmke expects the U.S. cow numbers to see a steady decline. However, production per cow is still showing strength.

"Farmers have been phenomenal with production," he adds. "Productivity per cow is still record high, even when you look at the numbers right now, and we're heading into a lower season in terms of productivity. But still, through management, through genetics, through on-farm innovation, they've really done a great job maintaining productivity. That's why we still have record milk production, even though cow numbers are trending lower, production still has been ample."

Ehmke says the feed scenario could apply more pressure on the production per cow numbers through the remainder of this year.

"We'll see what happens when we see tightness in the feed supply," adds Ehmke. "Farmers are going to have to get innovative on their feed and rations. That may impact productivity as well. At the same time, you've got some weather issues, especially out in the western half of the U.S. You have drought, you have extreme heat, and that's not good on productivity. So, in those states that are affected by extreme heat, that's going to pull those numbers down."