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Canada: High feed costs impact dairy profitability

26 November 2021

Profitability projections have been holding steady since the August update

While profitability projections for Canada's dairy sector remain steady, high grain costs and access to feed remain challenges, reported Farm Credit Canada (FCC) in the last of its quarterly updates for 2021

Farm milk revenues projections have slightly fallen for the Eastern provinces, and marginally improved for the Western Milk Pool (WMP).

Regarding costs, high world grain prices and access to feed in Western Canada contribute to higher production costs and are items on our watch.

The January and November gross revenues forecasts are less than 1% apart. However, actual and updated projections of feed cost indices show large increases since FCC's January forecast.

The demand for dairy products is not growing at the pace anticipated earlier this year, said FCC, who pointed to the current health crisis as the reason.  

Of concern to analysts is the high cost of feed in the Western provinces, particularly Alberta. Drought in the west has pressured the market for animal feed. Data from the Alberta Ministry of Agriculture and Forestry show an incredible increase in feed costs. In May 2021, the price of hay in Alberta bottomed at $131/ton but then surged to $256/ton in September.  The price for feed barley went from $6.00/bu in May to $6.95/bu in September. FCC said that as a result of these unforeseen changes it has had difficulty capturing clear projections. 

To address the rise of production costs, the Canadian Dairy Commission announced in October an increase in support prices that will result in a $6.31/hl increase in farm gate milk price. Pending approval by provincial authorities, the new support prices will become effective on 1 February 2022.



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