Economic conditions for dairy producers have been challenging over the last few years, mostly due to pricing pressures putting the squeeze on profit margins. Interest rates, however, were not a major factor, thanks to the Federal Reserve keeping short-term rates historically low in the wake of the recession.

Dairy sector economics have been challenging. On one hand, the U.S. and world economies are growing with increasing demand for dairy products, particularly butter and cheese. On the other hand, since Europe removed its milk quotas a few years ago and Canada tweaked its pricing system, the additional milk supply worldwide is outstripping this growing demand.

The 2014 farm bill significantly changed dairy policy for American dairy producers. Gone were milk price support programs such as the Milk Income Loss Contract (MILC) and the programs tied to parity prices. The current policy is the Margin Protection Program (MPP), which seeks to provide insurance-like coverage for a dairy farm’s margin based on the difference between milk and feed prices.

Dairy farmers have to navigate several risks – environmental, regulatory, animal care and management succession are just a few. But of all the risks dairy producers must manage, price volatility – which has grown more intense over the last decade – should be a top priority.