Plain and simple, or maybe not so simple, there is just too much milk being produced by dairy farmers, and products made from milk, like butter, milk powder and cheese, are being stored in amounts that pull down current prices.
Butter is in short supply in some countries, but not here. They are one dairy product that has grown in demand. Consumers are recognizing its good qualities.
However, there is more milk powder than we know what to do with. To get rid of it, processors and some governments that buy it are going to have to sell it at almost distressed prices.
This means lower farm milk prices going into this year. It is hard for local dairy farmers to be optimistic.
Milk prices are expected to bottom out early this year and then, hopefully, improve going into the last half of 2018.
Bob Cropp, dairy economist from the University of Wisconsin, said that with better prices later this year, milk prices will average about $15.20 per hundred pounds for the year. For dairy farmers to realize a decent profit, they need to be $18 to $20 a hundred.
There are some bright spots in the picture. China keeps increasing its imports of dairy products from us. Our economy in this country is strong and that increases the sales of milk and dairy products.
However, as the U.S. export market goes, so goes our local milk prices. Mexico, Southeast Asia and Canada are our three top markers for our dairy products. Any change in the way these countries buy our dairy products can affect our prices, both up and down.
Sales to Mexico have been down some already. They seem to want to diversify their supply and not depend too much on the U.S.
The future of the North American Free Trade Agreement (NAFTA), which is important to dairy farmers, is uncertain. It has played a major role in our export of dairy products in the past.
So what does the future hold for local dairy farmers? One bright spot is feed costs are expected to stay down. With corn prices in the $3.50 to $3.75 a bushel range, and reasonable soybean meal prices, feed prices should stay low.
The problem is non-feed costs, especially labor, keep going up. That affects the cost of milk production and can offset lower feed costs.
As we can see, milk prices are fickle and depend on a lot of different things. For the first half of this year, they don’t look good for local dairy farmers. Just how much more they can tighten their belts remains to be seen.
All of us can help, small as it might be, if we drink more milk and eat more ice cream, butter and cheese.
Parker is an independent writer for Farm Bureau and other organizations.