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May 15
When will the pendulum swing for milk producers?

RowOfDairyCows.jpg

Milk producers are into their fourth year of low profit, or unprofitable production, prompting many to question when will the pendulum swing?

It appears​ there might be some relief in sight, albeit slow and slight. The Class III price for April milk ended up at $14.50 per cwt, compared to $14.22 for March and $13.40 in February. 

Improved dairy exports are providing some optimism for better milk prices, as well. Exports have been running higher than a year earlier since July of last year and on a volume basis, reached an all-time high in February.

Compared to February 2017, exports this February were: nonfat dry milk-skim milk powder up 28%, cheese up 7%, butterfat up 21%, total whey products up 7% with dry whey up 29%, and lactose up 27%. On a total milk solids basis, February exports were equivalent to 17.2% of U.S. milk production, compared to 14.8% last year.​

The increased export markets were to China, Southeast Asia, South America, China, Southeast Asia Middle East-North Africa and Japan. However, there’s still plenty of concern.

According to Dr. Mark Stephenson, who was originally from Michigan and is now the Director of Policy Analysis for the University of Wisconsin-Madison, a lot of dry milk powder is being held by the European Union, although some of it has limited use in the market because it is not suitable for cheese. That stock pile is largely attributed to the EU’s lift on milk production quotas. 

According to Christopher Wolf, a professor of agricultural, food and resource economics at Michigan State University, Ireland, Germany and the Netherlands are seeing production take off. “They’re becoming more competitive, while New Zeeland and Australia continue to be important producers, but are more affected by drought,” he says. “There are just way too many dairy proteins on the market, like skim milk powders, non-fat dry milk and dry wheys. Meanwhile, the consumption of butter here in the U.S. and other places, as well as ice cream, has been going up. So, we’re short on fat, but excess protein internationally has really put a lid on how prices will increase.”

Mexico, by far, is the biggest export market for dairy, especially for dairy proteins, says Wolf, who notes how important NAFTA is in keeping access to that market. Canada has also changed its milk pricing system, which has created artificial domestic prices and has allowed them to dump surplus skim milk solids onto the global market at very low prices, according to American Farm Bureau Federation market intelligence director John Newton. 

In a Brownfield report, he said the new class system has virtually stopped the imports of U.S. ultra-filtered milk and has hurt U.S. dairy prices.  And that producers are losing access to markets because milk supplies are backing up and there’s not enough processing capacity.

Michigan’s processing capacity has not kept pace with production, but is making strides to correct that situation. A new milk processing plant is in the works, but no location announcement has been made. According to Glambia, an Irish company, it will own 50 percent of the enterprise, while Dairy Farmers of America and Select Milk Producers will share the balance of the equity. Michigan Milk Producers Association will be the strategic milk supplier of the plant, designed to process 8 million pounds of milk a day to be made into cheese. With it taking 10 pounds of milk to make a pound of cheese, that’s manufacturing 800,000 pounds of cheese a day. Wolf says that would make it one of the larger cheese processing plants in the country, except for a few out West. That plant, however, is probably two years away, he says.
 
Foremost Farms, headquartered in Wisconsin, is building a processing plant in Greenville. The cooperative broke ground on the project in mid-March and Phase I is expected to be completed in October and processing milk by November of this year. When completed, the plant will process up to 4 million pounds of milk a day, with the ability to take in 6 million pounds a day. Milk will be separated and condensed for distribution to other Foremost dairy processing facilities in the Upper Midwest. 

In 2017, fluid U.S. milk sales declined 2 percent and growth in both butter and cheese sales were relatively weak. According to the NASS report, milk production in the 23 major states during March totaled 17.8 billion pounds, up 1.5 percent from March 2017. The daily production per cow in those major states averaged 65.7 pounds for March, 0.7 pounds above March 2017.

Michigan, which had been the poster child for milk production increases, slowed to just .08 percent in March and Wisconsin remained unchanged. The number of milk cows on farms in the major states was 8.74 million head, 29,000 head more than March 2017, but 2,000 head less than February 2018.

According to USDA, both Minnesota and Wisconsin have had significant declines in milk cow numbers — of 5,000 and 6,000 head, respectively. According to Michigan Farm Bureau, Michigan might actually see a decrease in herd size in very short-order, citing several recent herd dispersals and increased cull rates.

How long can farmers hang on if prices don’t begin to turn around. Wolf says, these down cycles are tough, and it’s not a small or farm large issue. “It’s more about debt holding,” he says. 

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