Dairy farmers to finish year with sour price levels
MADISON - Dairy economist Bob Cropp confirmed what farmers are already well aware of – this has been a tough year for dairy farmers.
Speaking at a quarterly Dairy Exchange organized by the Wisconsin Department of Agriculture, Trade and Consumer Protection, Cropp noted that milk prices hovered around $14 per hundredweight for the first four months of the year and many prognosticators felt that prices would improve from there.
They did slightly improve, reaching $15 per hundredweight. At that point in the year exports had reached a new high-water mark and the industry felt that things would improve some more, based on the movement of burdensome supplies overseas. But that’s when the Trump Administration began imposing tariffs and those targeted trading partners retaliated with tariffs of their own – and dairy products were among the items that were targets. Some of the brisk international movement of dairy products ceased.
Cropp said he felt that the cheese market over-reacted to the tariff news and prices began dropping precipitously; even before tariffs had a chance to go into effect.
Even so, by September, milk prices had inched their way up to $16.06, prompting another mild wave of optimism for better prices. However the last couple of weeks in the cheese markets have shown a “nosedive” in prices, he said.
Cropp noted that 2017 featured an average Class III (cheese milk) price of $16.16 per hundredweight, which is not a good level for dairy producers. He predicted that 2018 will finish at an average price of $14.93 per hundredweight -- $1.23 lower than last year.
“That’s not good news for dairy farmers. It’s not a cash-flowing level for most,” he said.
The current cheese market features some odd conditions. “We used to see a four-cent spread between blocks and barrels,” he said. “Now, blocks have dropped down to prices we have not seen since 2009.
“Thank heavens that dry whey is being purchased at 57 cents now, because it is adding $1.50 to milk prices.” About 65 percent of that product goes into export channels.
With the price situation, it’s little surprise to economists like Cropp that cow numbers are lower than last year. “Last year we built cow numbers but now we are 32,000 dairy cows lower than a year ago, on a national level.”
September data showed that California has 11,000 fewer cows than a year ago, but Idaho had added 4,000 and Texas added 24,000 cows. The Upper Midwest and the Northeast dairy states shed cows, with Wisconsin losing 4,000 cows, New York and Michigan both losing 6,000 cows each. Minnesota, Pennsylvania and Florida also lost cow numbers.
Even with losses in the traditional dairy states of the Northeast and Midwest, the U.S. dairy cow population is up 8,000 cows to a total of 9.4 million head.
Milk production per cow continues to rise with improvements in genetics and management. That means if we can’t hold onto export markets, the United States will need fewer cows.
Some trade still good
Despite the ongoing trade and tariff wars, Cropp said some exports are holding up pretty well – mainly in markets where retaliatory tariffs haven’t been applied.
Non-fat dry milk to Mexico has picked up 26 percent, year-to-date, he said but cheese exports to Mexico are down 21 percent.
The Trump administration has not lifted the steel and aluminum tariffs on Mexico so Mexico will not eliminate the 25 percent tariffs on U.S. cheese. That hasn’t changed despite a new trade agreement among North America’s three nations that was announced at the end of September.
Some dairy trade has picked up to Southeast Asia but dry whey products moving from the United States to China are down 26 percent. Cheese exports to China are down 40 percent, Cropp noted.
There is plenty of cheese in the pipeline, which tends to drive prices downward, especially if export markets are closed to it. Cropp noted that there is 1.5 percent more American cheese in U.S. warehouses than a year ago and butter stocks are up 10.6 percent. However, non-fat dry milk is down 2.7 percent, largely due to the amounts of it that are being exported.
In 2019 dairy prices will largely depend on production levels and demand for products – at home and abroad. The U.S. Department of Agriculture is predicting the addition of 5,000 head of dairy cows to the national herd and production increases of 1.4 percent in the milk-per-cow statistic, he said.
“I don’t see a lot of farm expansions coming in 2019,” Cropp said. “Four years of low prices have caused financial stress among farmers.”
Other conditions will continue to plague various regions of the dairy industry. The Northeast, where farm milk has been dumped off-and-on for several years, still lacks sufficient plant capacity.
Cropp noted that dairy production also hinges on the feed that goes into dairy cows and wet weather for making hay and corn silage could affect production in traditional dairy regions of the United States.
Cow slaughter numbers in the United States are running higher than last year.
World milk production has slowed, based on weather events in major dairy regions. Europe – one of the world’s leading dairy production regions -- has experienced severe drought this summer.
While the dairy trade has been torpedoed in some export markets, the United States is negotiating with Japan on a unilateral trade agreement. Cropp doesn’t believe any impact of eventual trade deal there could be felt until 2020.
Softer world demand is one of the chief concerns for the dairy industry, he said, and that is largely based on the U.S.-China trade war.
But overall the U.S. economy is good which means that demand for dairy continues to be strong among U.S. consumers. With production slowing slightly and at least domestic production remaining strong, there are ample supplies of dairy products, except butter which remains tight on stocks.
For 2019, Cropp sees milk prices trending from $15.30 to $16.20 per hundredweight. “It’s still not great but it’s definitely an improvement.”