Dairy farmers were offered the opportunity to hear from dairy economist Bob Wellington, of dairy cooperative Agri-Mark, Inc., during a teleconference through the University of Vermont Extension. Bob Parsons, UVM Extension Economist, hosted the call.
Wellington discussed the ‘chaos of the world market,’ which is ‘crucial’ to United States dairy producers as 13-14 percent of U.S.-produced milk, on a component basis, is currently exported overseas.
China’s stockpiled inventory, slowing economy and currency devaluation play a role, and U.S. exports to China are predicted to decrease. In Europe, the end of the Russian embargo could cause some impact on world markets. New Zealand’s production is way down, and the Pacific Rim has a demand for protein-based products, Wellington said.
But a relatively strong U.S. dollar favors dairy imports into the country, and limits exports. Overall, any continued fall in exports overseas will have a “major U.S. impact,” Wellington said.
In order to maintain milk prices, “we’ve got to keep these expert markets,” Parsons concurred.
The butter market, dominated by the Western United States, is up slightly again, with good prices and strong sales, but lots of inventory. The region is decreasing production, keeping butter prices relatively high. They are predicted to remain in the $2-$3 per pound range.
Powder, primarily from the West, is dropping in supply, inventory and production.
“The world market sets these prices,” Wellington said, as we export a high percentage of our powder.
Production in the Midwest is primarily driven by cheese. Milk production is increasing, and cheese pricing is at $1.40-$1.50 per pound, a decrease from late 2015.
Milk pricing overall will be impacted by “what is happening with cheese,” Wellington said. “I’m worried about the Midwest,” as increased production will put pressure on cheese production and pricing.
In the Northeast, milk production is up slightly, increasing about three percent over the past two years. But yogurt production is no longer a major factor, as the plants have relocated, and supply is increased without the same demand.
Cost of production
Feed is low in the Northeast. One concern would be if farmers increase production. Supply of fluid milk will remain high, so pricing could suffer.
One teleconference participant asked why dairy farmers “can’t get the price for our milk that we need to produce it?”
Wellington explained the milk pricing system is not working, but the “politics are just not there to make it happen.” In the past, when farmers were asked about production quotas, keeping them to past levels and not allowing increases, they industry was split on whether or not this was an acceptable approach.
“Right now, no one wants to drop milk. Farmers want to produce the amount of milk they want,” Wellington said.
Land O’Lakes announced quotas last fall, but Wellington isn’t convinced that others would try to follow suit. Wellington said one challenge for the cooperatives is to find ways to handle extra milk. He emphasized that the cooperatives are working diligently to do so, and he predicts that prices will not be ‘a total collapse.’
“We don’t have enough capacity to handle the change in the milk supply,” in the Northeast, Wellington said. “You have to run full around the clock. We’re finding ways to make that work.” In July, “the crush really starts happening. The worst case scenario is dumping milk.”
July is crucial, as production naturally increases in spring and early summer. The demand from the winter holidays has passed, and excess milk production concerns peak.
Teleconference participants expressed dismay that consumers don’t seem to understand the cost of production dairy farmers carry. While farmers need $20/cwt milk, consumers won’t pay for it and don’t understand why they should need to support that pricing, one caller said. But if farmers cut production, they won’t have the cash flow they need to keep the farm in business.
“The consumers have all of the dairy products they want,” and don’t see a problem, but “at the end of the day, we have the same or more milk,” Parsons said. “Our consumers are so removed from our farmers.”
Wellington, however, believes that consumers do have demands, and that those demands are changing the industry, and could have positive impact, too. Agri-Mark receives consumer calls “all the time” regarding farm practices, and the store chains, which are the primary customers of the cooperatives, are responding to consumer demands. Tail docking is one such issue, he said.
The demand for more local product could potentially lead to stores branding local milk, which could then increase the price to the consumer for the value-added perception of locally-produced milk. But with the private-label store brand priced lower, many consumers might opt then for that option, instead. If store brands were produced more locally, that could help, and consumer demand could make that happen.
“There are consumers who are concerned about buying local,” but price is a concern, Wellington said. “We have very loyal consumers at Cabot,” but “its the same thing on the farms as it is with consumer’s families,” with everyone sharing the need to make the dollar go farther.
Future of milk
Moving ahead to 2017, “normally things would be rebounding,” Wellington said. He does expect “a fair level of recovery.”
The normal cycle should increase prices by Fall 2016, but European issues and government policy can have a huge impact on whether or not that occurs.
“The market, right now, is only going to deliver roller coasters, as supply and demand goes up and down,” he concluded.