Dairy price slump continues

Jan Shepel
Now Media Group


Economist Daniel Basse provided his perspective on dairy prices to an audience of dairy farmers in Madison for the annual business conference hosted by the Professional Dairy Producers of Wisconsin, noting that prices in the dairy business are not profitable for many.

The PDPW is now the nation's largest producer-led grassroots organization, with more than 1,600 dairy farm members in 32 states and four countries. Executive Director Shelly Mayer said there is no thought of changing the organization's name to reflect its extended geographic reach because it wouldn't be fair to the group's founders and heritage.

Keynoter Basse is president of AgResource Company, a Chicago-based agricultural research firm, which forecasts domestic and world agricultural price trends. Despite the upbeat mood of members at the conference — which is now in its 24th year — the price picture for the dairy industry doesn't look great, according to Basse.

Dairy production per cow is growing everywhere in the world, except China, he said, adding that India has dramatically increased its dairy herds and has also become the second largest beef exporter in the world. 'To think we are the only dairy producers in the world is not right,' he said.

He predicted that India could become an even bigger milk producer in the future.

He predicts only 'modest' growth in world dairy trade after Europe liberalized its dairy trade and the dollar continues to stand strong in the world. 'The value of the U.S. dollar has never had more importance than it does right now. Prices will stay flat until the dollar gets weaker.'

Buyers will continue to go to the low-cost seller, he added.

Globally, dairy production is up 7.4 percent in three years and butter is holding up prices domestically. Basse said because butter is so scarce, his clients in the food industry are importing butter.

One of the driving forces in this butter run-up is fast-food behemoth McDonalds, which got rid of margarine in its food preparation and began offering its breakfast menu all day. The changes mean an additional 600 million pounds of butter to McDonalds alone.

'Butterfat is a big component of the price of milk and that is something that will continue,' he said.

He predicted dairy farmers would only be 'marginally' profitable in the coming year and corn and soybean producers are generally looking at losses of $70 per acre.

Basse believes that the government should begin taking land and even dairy cows out of production. The price of a hundredweight of milk will trend from $12.25 to $16.50 into 2016, he predicted, noting that the farm bill's Dairy Margin Protection Program isn't helping dairy farmers who are in financial trouble.

He sees feed prices going 'sideways to lower' in the coming year. 'Feed will only become a problem is weather becomes a factor.'

For dairy and crop producers the last big unknown is the weather. This year the world's oceans have become the warmest ever and erratic weather has become almost the norm.

Population effects

The world population stands at somewhere around 7.25 billion people, but Basse said that population growth is slowing in many countries. When the United Nations made its population estimates for 2040, it found that Japan would have a net loss of 23 million people, Russia would lose 24 million people and Europe would have 49 million fewer people.

The United States would have net growth 'but only if the wall isn't built, because it's all immigration,' he said, referring to candidate Donald Trump's declared intention to build a wall on the Mexico border with the United States.

Opportunities for global trade in food would come in India, which is estimated to gain 580 million people by 2040; China with 325 million added people; Pakistan with an additional 99 million people and Bangladesh with 97 million more mouths to feed.

But Basse added that if these added people in the world are to be a new market for U.S. production in dairy, grains and other food products, they will need to have purchasing power to go along with added population figures.