The U.S. dairy industry is quickly becoming like Argentina—dependent on exports to buoy prices and clear increasingly larger volumes of milk production.
That’s according to Mike Swanson, Vice President and Agricultural Economist for Wells Fargo, the nation’s largest agricultural lender. Swanson was the opening speaker at the 10th annual Elite Producer Business Conference here in Las Vegas, sponsored by Dairy Today magazine.
Argentina’s agriculture is wholly dependent on exports. And it’s abundantly clear that the U.S. dairy industry has entered this new era as well. Today, one out of every eight pounds of milk solids produced in this country is now being consumed off-shore. These exports have provided the underlying basis for $20-plus milk prices we enjoyed this past summer. Through August, net dairy trade totaled $552 million dollars in 2011, up 16% over year earlier.
But increasing exports also exponentially increase operating risks should any portion of that tonnage back up shipping docks in the Port of Long Beach, Seattle or New Orleans. Export sales are notoriously reliant on currency exchange rates and trade agreements, which at times can go counter to the interests of exporting countries.
To counter the increased risk, Swanson says dairy producers must become much better risk managers, locking in margins by locking down milk and feed prices. Increased working capital is also a must if producers hope to survive sudden down turns when profitable margins are not locked in.