A dairy market and policy expert from the University of Wisconsin-Madison expects milk prices to drop in 2018 as more product continues to flood the worldwide market.
At a dairy outlook webinar hosted by Farm Credit East on Wednesday, Mark Stephenson, director of the university’s Center for Dairy Profitability, said he predicts all milk prices will be down from 2017 by $1.55-per-hundred-weight for 2018, which would bring farmers into another year of low milk prices.
The top five dairy product exporters in the world — New Zealand, Argentina, Australia, the European Union and the U.S. — combined have increased milk production by about four percent from January to September, Mr. Stephenson said. The U.S. itself maintained an about one to two percent increase during that time.
The influx of stock worldwide, particularly for nonfat dry milk powder, will decrease U.S. dairy prices because it will limit the nation’s ability to export products, Mr. Stephenson said.
“Unless circumstances change significantly on the export side, it’s hard to be very optimistic about milk prices in the short-run,” he said.
Another year of low milk prices means another year farmers will have to tighten their belts and do whatever possible to keep costs down and cash flowing, according to two officials from Farm Credit East.
Corey Kayhart, a senior loan officer with the financial institution, said farmers will limit investments and borrowing to focus on repairs, feed inventory and their heifers. Some farmers may want to purchase more cows to increase production for additional cash flow, but whether that would be beneficial is determined on a case-by-case basis, Mr. Kayhart said.
“We’re going back to the 2016 price cycle and entering a season with a less healthy balance sheet,” he said.
In addition to keeping costs down, Gregg McConnell, a business consultant with Farm Credit East, said farmers are trying to increase milk yield per cow by using more land for crops, maximizing parlor capacity and working with nutritionists to create an optimal diet. Some factors that influence U.S. dairy pricing, such as international exports, however, are outside of their control, Mr. McConnell said.
“We’re seeing deficits that are approaching, you know, $500 to $400 per cow,” Mr. McConnell. “We’ve had balance sheets that have been eroded on a lot of farms and it’s going to be hard to deal with that deficit this year.”
Despite the oversupply causing a decline in prices, dairy farmers continue to modestly increase production per cow.
Mr. Stephenson said prices haven’t dipped below variable production costs like feed or declined enough to convince farmers to curtail production like in 2009 when U.S. production dropped by about two percent due to low prices. National milk production has, for the most part, steadily increased for decades from about 7,000 pounds per cow in 1960 to more than 20,000 pounds in 2010.
“It was a deep enough cut (in 2009) where it changed production behavior,” Mr. Stephenson said. “This, rather, is more like a long scrape than a deep cut.”
While milk prices are expected to drop, consumer confidence and milk product purchases per capita have gone up in recent years, Mr. Stephenson said, although milk fluid purchases have almost consecutively declined since 2010.
However, Mr. Stephenson said that confidence may wane if peoples’ economic expectations for the future erode.
“That worrying about the future has a tendency to make consumers more conservative,” with money, he said.