U.S. remains only major dairy exporter with adequate supplies to offer to hungry world markets.
The brisk pace of U.S. dairy exports and a likely slowdown in July-August milk production should support milk prices at the $19 level, says Jerry Dryer, president of J/D/G Consulting and dairy market analyst.
Speaking in the July 2013 Dairy Situation and Outlook podcast from the University of Wisconsin, Dryer says dairy demand is climbing and "the export picture is pretty rosy and fairly bullish."
Joining him in the 11-minute podcast are University of Wisconsin economists Mark Stephenson and Bob Cropp.
Although inventories of butter and cheese have been increasing, Dryer thinks the growing export momentum could consume some of those stocks. Dryer adds that international buyers, who have been waiting for New Zealand’s milk production to resume, "may get a rude awakening" when they find that milk supplies are not readily available as the holiday season approaches.
This year’s drought in New Zealand has sharply curbed milk output in that major dairy region. Weather-related problems in the European Union have also curtailed milk production there, leaving the U.S. as the only major dairy exporter with adequate supplies to offer to hungry world markets. In recent months, U.S. exports have grown to account for nearly 17% of domestic milk production.
"If we were making the right products, we’d be moving a lot more," Dryer says. "Probably we would not be looking at quite those [high butter and cheese] inventories."
U.S. processors have been hesitant to make Gouda cheese, 82% butterfat butter and skim milk powder, which foreign markets are seeking, adds Dryer.
Cropp agrees that $19 milk prices are possible, and that cheese could rise from its $1.70 level to as high as $1.85. While USDA’s June milk production report showed milk production up slightly, "there has been a lot of hot weather since then," Cropp says. That could limit milk output at a time when demand is on the upswing.
View the podcast here.