Are current dairy prices a bubble or are they in territory that can be sustainable?
Members of the Scenic Central Milk Producers Cooperative heard last week at their annual meeting that there are reasons for dairy farmers to be hopeful — there are factors underpinning the current market that could bode well for dairy prices this year and on into the future.
Ron Statz, general manager of the cooperative, told members that exports to China and other Pacific Rim countries are strong and growing and illustrate an expanding world market.
"They are hungry for proteins and for dairy proteins in particular."
As the demand as grown, dairy production hasn't increased at the level some had predicted, he said, perhaps due to feed quality from last year's crop. The number of replacement heifers is below expectations.
Heifer numbers are likely being affected by the beef market, he said, as producers see they may gain more profit from fattening heifers and selling them as meat animals than to raise them for dairy herd replacements.
In the marketplace, dairy protein competes at some level with meat and there is a lot more room for dairy protein prices to stay high as beef prices stay high.
"These are among the reasons I think we could expect some strong prices."
On the down side Statz noted that the dairy market is still affected by the thinly traded Chicago market, which makes it possible for speculation to affect prices. "There can be manipulation by those who don't milk cows or make cheese but just play the market."
Pete Hardin, editor and publisher of The Milkweed, a monthly dairy publication, was even more optimistic about prices for dairy producers as he addressed the co-op's members.
"The moon, stars and planets are all lining up for a once-in-a-lifetime production opportunity" for Wisconsin's dairy producers, Hardin said. "This could be perhaps the best year you've ever seen.
"It's a long time coming."
Midwestern farmers may not have had their best crops ever in 2013, but they were good enough to get their cows by. In northeastern Wisconsin alfalfa crops were lost over the winter and all over the state farmers found it difficult to get corn planted.
A late-maturing corn crop got caught up in a wet fall.
As the result of those cropping situations there is a shortage of dietary energy in dairy rations, Hardin said, resulting in perhaps lower production on many farms. But lower than expected production coupled with increased demand can mean higher prices.
He echoed Statz's comments that the beef market is undergirding dairy prices as many open Holstein heifers continue to move into beef feedlots.
The nation is short on beef cattle supplies and prices being paid for fat steers and even heifers are sky high. "One Wisconsin producer sent six Holstein steers to market last week, ranging in weight from 1,600-1,650 pounds and got $1.35 per pound live weight."
Hardin said it will be a "long time before Americans lose their taste for steak and hamburgers" adding that the beef industry wants to rebuild.
Those market forces, he believes, will continue to drive up prices for the dairy industry. "I see nothing but upside potential."
The China market is another reason he sees higher price potential for dairy. As that nation moves forward with a plan to get rid of its smaller and medium-sized dairies and move into more concentrated, large dairy operations, milk production has dropped. An outbreak of foot and mouth disease is raging in China, he said.
"They are desperate for complete, quality proteins that their citizens can get every day and they are coming up short."
The last year has been the driest in California's history, Hardin said "and so far this year is drier. Reservoirs are way down and the snow pack is only 12 percent of normal."
He predicted that agriculture, including dairy farms there, will lose out in the water war as citizens and industry take what water is available.
"By default we may see Wisconsin once again become the state that produces the most milk."
Hardin told farmers they should consider the production business they are in. They need to think about the wisest conversion of energy to protein in the form of milk and beef.
Because of the coming together of the many factors in the world and national marketplace, he believes the dairy price will "get nothing but stronger.
"It's all coming together and lining up in terms of dairy marketing and production. We're going to see something we've never seen — scarcity."
For dairy processors, the single most important factor for efficiency is percent of capacity, and Hardin foresees a "real scramble for milk."
Hardin does worry that as one-third of Americans suffer from food challenges and the farm bill cut the food stamp program there may be impacts on consumption of dairy products.
He believes the industry needs to advertise and promote milk as a complete, basic, nutritious food. "We are selling nutrition ultimately."
Even at high grocery-store prices, Hardin sees a gallon of milk as a good nutritional bargain.