Global dairy markets have fallen to two-year lows over the past six months, with milk powder prices down 45%, butter down 40% and cheese down about 25%.
U.S. prices for cheddar cheese and butter have not followed suit (both a good and bad thing) while powder prices have gone from about $2/lb. earlier this year to $1.35 (again, both a bad and good thing).
On cheese and butter, the good news is that strong domestic prices have buoyed milk prices to near record levels this past summer. The bad news is that these prices are not sustainable if the U.S. hopes to remain export competitive or become a vacuum cleaner for dairy imports, sucking in large volumes of both cheese and butter.
Skim milk powder is just the opposite. U.S. exporters have been willing to follow the global market slide. That’s bad in that these lower prices mean fewer dollars in farmers’ mailboxes, particularly in markets with high Class IV utilization. But at the same, it’s good in that exporters have matured to the point where they are willing to take lower prices to maintain market share and customer loyalty.
To date, all of this has not substantially affected the net prices paid for farmers. But it will. "We will not see an all-out collapse, it will not be another 2009, but prices will soften in 2015," says Alan Levitt, vice president of communications for the U.S. Dairy Export Council.
"If the U.S. market declines as much as the Oceania market, U.S. all-milk prices would be around $15/cwt.," says Levitt. But he doesn’t think that will happen.
Levitt expects global powder prices to recover over the next few months. "We’re likely at or close to the bottom of the price cycle," Levitt says. "Prices are about at the level at which they bottomed out in 2012, and they are at the level at which buying activity should improve. We’re also entering China’s seasonal buying period."
Nevertheless, lower U.S. prices could languish well through the first six months of 2015, he says. That’s because feed prices, particularly corn, have fallen dramatically from a year ago. So income over feed cost margins are still relatively strong, and farmers have not gotten price signals to cut back on milk production.
USDEC expects U.S. dairy exports to soften at least through the first or second quarter of next year. Our high prices compared to global prices mean international buyers will source more of their dairy needs from New Zealand or Europe. Remember, the Russian ban of European dairy products mean they’ll have to go somewhere. (Europe had been exporting some 2% of its total dairy output to Russia prior to the ban.)
Long term, global dairy trade will continue to expand. The International Farm Comparison Network estimates the demand for dairy products will continue to grow 21 million tons of milk each year for the next decade. That’s the equivalent of adding a "new" New Zealand each year.
The challenge for U.S. dairy farmers will be the next nine to 15 months. Lower prices are ahead. How much lower is the question.
Harvest Report: Ohio Farmers Still Feeling Effects of Cool Summer
Foot Fitness: Preventing Digital Dermatitis