Cornell University’s Dr. Andrew Novakovic and Cornell’s ProDairy Program’s Senior Extension Associate Jason Karzses were featured speakers at the Strategizing the Future: The Future of Milk Markets and How to Develop an Economic Plan meeting at the CCE Ballston Spa location.
“We have been in a down market for a little while, so dairies are all asking when they can expect relief and what does the future look like,” said Kirk Schoen, CCE Farm Business Management, Dairy & Field Crops Educator of Saratoga County.
Novakovic, Professor of Agricultural Economics at Cornell, and also Co-Chair of the National Dairy Markets and Policy Program, explained most of U.S. imports are high quality, European style cheeses and some milk proteins.
“Mostly what we import is fancy cheese that we don’t make much of,” said Novakovic. “Export use has become kind of a fairly significant number. It’s got a little activity, it goes up and down and it makes a difference. In a skim basis, that’s were our exports are. Roughly three out of every four pounds of nonfat dry milk, skim milk powder and dried whey products are sold overseas. So, that is a gigantically important market.”
Novakovic said this market has a tremendous impact on big companies producing powdered milk, especially on the west coast. These exports represent 10-15 percent of the U.S. milk supply.
The things driving the domestic market are pretty seriously different from the things driving the whole market.
Although numbers are high in exporting skim products, as a nation statistics show we are consuming more fat-based products locally, and the fat number looks even better for 2017.
“When you look at what’s being sold domestically, you can see the fat number is up. It’s predicted to be up, and it’s been marking up pretty nicely every year. That’s why we’re seeing a little more bullish number in sales on the fat side than sales on the skim side.”
“This is after decades of feeling guilty about eating butter and drinking whole milk and having full fat ice cream. Now, that tide really has turned.”
However, while whole milk sales are increasing, beverage milk sales in total are still declining.
So, what is the indication for the coming year?
“On the export market we’re not expecting increases,” Novakovic remarked. “We think we might lose a little bit on the fat side, but we’re expecting to get skim solid sales up in the vicinity that they were in 2014, which was a pretty good year for us. So, that part of the story is good.”
According to the USDA Market Expectations, the “all milk” price estimated for 2017 for are expected to range from a low of $16.85/cwt to 17.65/cwt.
“Obviously this is showing a tremendous improvement compared to what we had until we get back into 2014. You actually have to go back to the fall of 2014 when the market was starting to come down to find a number that was that high. So it’s a very serious increase.”
And how are things trending?
Novakovic remarked although the prices don’t always follow a track, he definitely still sees a tendency for a three-year cycle.
“Now what we have is more cyclical variation, which is a little bit harder to predict. We’re going to continue to see volatility, but I think it’s going to be a little bit less than some levels that we saw about a decade ago.”
Novakovic used an example.
“Somebody said to me, ‘when are we going to have $24 milk again?’ and I said, ‘when we have $7 corn again.’ I think we are going to see prices so that people are able to make a profit, but you can’t measure that against the $20 price when you’ve got $3.50 or $4 corn.”
Novakovic’s prediction is for 2017 milk prices to rise through autumn and taper off at the end of the year in what is considered to be a normal price pattern.
“We are due for a rise, and we are expecting a rise.”
In summary, Novakovic stated, “I guess I would say these two things. First, 2017 will be a year when dairy farmers across the U.S. see an improvement in milk prices and relatively stable costs, especially feed costs. Profitability should improve noticeably, although it is unlikely to be a record type of year. Second, a particular marketing challenge in the coming year will continue to be coordinating milk production with dairy product demand. Cooperatives in particular will likely be revisiting price incentives and other ways in which they try to line up what producers want to produce with what the market needs to satisfy demand. With rising milk prices, this coordination challenge will get trickier, and the answer is a good deal more complicated than just building another milk plant in New York. There are positive signs in dairy market demand, but milk production is also expected to grow. Optimism in dairy markets hinges a lot on the assumption that we will be more competitive in export markets.”
Novakovic remarked on the recent decision made by president Trump to discontinue negotiations Trans-Pacific Partnership (TPP).
“Congress had already effectively killed TPP last year,” said Novakovic. “But President Trump’s decision sweeps it off the table. Moreover, he is clearly signaling to the world that he will take a very different and more aggressive tack on trade policy, including that with our two biggest trading partners and neighbors. Industries that rely heavily on exports, as agriculture does, are concerned about the implications of all of this for future export potential. Rejecting TPP, in and of itself, is more important as a broad signal of what might be coming down the road.”