Applying the Brakes to Dairy Production Growth
December 13, 2015
PAER-2015-15
Nicole Olynk Widmar, Professor of Agricultural Economics & Michael Shutz, Professor of Animal Sciences
Total U.S. milk production in September 2015 was up only 0.4% over September 2014. This level indicates dairy markets in the U.S. have begun to realize some “braking” in production growth. Production growth was slower for September 2015 (0.4%) than it was for either July (1.3%) or August (0.9%). Thus, a slowdown in growth is a response to softer milk prices. The lower growth of production in September has led USDA to adjust fourth quarter 2015 production downward by 0.2 billion pounds. Milk cow numbers, as well as milk-per-cow projections were also lowered. ERS-USDA is now projecting the national milk cow herd at 9.310 million head (down 15,000 cows) and milk-per-cow at 5,525 (down 5 pounds).
The export outlook for U.S. dairy is not optimistic at this point. Numerous factors are negatively impacting dairy trade, including (but not limited to) the strong U.S. dollar, the slowing of the Chinese economy, migration in Europe and the Middle East, and general political and the economic uncertainty in the Middle East and North Africa. Competition from producers in the rest of the world is intense. Especially difficult competition is coming from the European Union due to the embargo on sales to Russia and where the Euro has fallen 11% relative to the U.S. dollar in the past year making their products more price competitive. These factors are providing a pessimistic forecast for U.S. dairy exports.
Looking to the domestic market, USDA Agricultural Marketing Service reported average national wholesale prices for cheese, nonfat dry milk, whey, and butter from September to October. Cheddar cheese prices fell (from $1.715 to $1.697 per pound), as did the whey price (24.4 to 23.1 cents per pound). On the other hand, nonfat dry milk prices increased from $0.801 to $0.895 per pound and butter rose from $2.445 to $2.573 per pound.
Relatively high stocks for cheese, butter, and nonfat dry milk have led to reductions in the 2016 price forecasts in the ERS-USDA November report. Stocks have risen substantially over the past year. September 2015 ending stocks were 23.1% higher for butter, 10.7% higher for American cheese, 17.8% higher for other cheese, 24.6% higher for nonfat dry milk, and 22.3% higher for dry whey than September 2014.
Milk prices have been falling. The all-milk price forecast for 2016 is currently $15.95 to $16.75 per cwt. compared to about $17 in 2015 and near $24 per cwt. In 2014.
Lower feed costs will a positive for margins. The ERS-USDA 2015/16 forecasted U.S. corn price is between $3.35-$3.95 per bushel, the soybean meal price is down to $290 – $330 per short ton, and the national average alfalfa hay price fell to $157 per short ton. Thus, while milk prices are down, lower feed costs will help somewhat as dairy producers are currently staring down tight margins for 2016.
