Milk prices in 2014 were really good, which was one of the factors that boosted production and brought the market crashing down over the next couple of years.
After bottoming out earlier this year, milk prices are again starting to climb, which — combined with the large amount of feed available — should bring farmers back to profitable levels, according to a market analyst who spoke Nov. 10 at the Penn State Dairy Cattle Nutrition Workshop in Grantville.
But Mary Ledman, owner of Keough Ledman Associates Inc., also told the dairy nutritionists at the workshop that if their clients are expecting a return to 2014 milk prices, “it will not happen.”
Global milk prices are stabilizing, Ledman said, and she predicts they will settle around the five-year average in 2017 — “prices that nobody is going to get rich at but not painful enough to see exits in the industry.”
Milk prices go up and down depending on the activity in various dairy markets. A change in one market can create a domino effect.
The rapid growth in the overall market that began in 2013 was spawned by a drought in China, which prompted the Chinese to buy about 80 percent of New Zealand’s milk supply, she said.
However, New Zealand’s milk production was also suffering from a drought and did not have an abundance of milk powder to sell.
That sent the Chinese to the European Union, which in turn shifted to meet the demand for whole milk powder, creating a shortage of skim milk powder.
The world’s buyers then turned to the United States for skim milk powder, and prices here started to climb.
“When we look at 2008 and 2014 … when we saw the highest milk prices in history, China and (New Zealand) were behind it,” she said.
The United States has milk markets that are unique to this country and not available to other large milk-producing countries.
First, most of the U.S. milk supply goes to the domestic market with only 10 to 15 percent being exported.
“Our dairy farmers did not see their milk prices cut in half” when the market collapsed as did the European Union and New Zealand. “One of the key reasons is because we have over 300 million domestic consumers that really like cheese,” Ledman said.
The U.S. produces about 40 billion pounds of cheese a year, but exports only about 5 billion pounds. Instead, U.S. dairy exports focus on skim milk powder.
India is the world’s largest milk-producing country when cow and buffalo milk are combined. Much of that milk is converted to butter.
New Zealand also focuses on powder and exports 85 percent of its dairy production. In turn, the European Union is the world’s largest exporter of cheese.
In this country, California, by far the leading milk-producing state, has had 21 consecutive months of declines in year-over-year milk production.
The decline in September was the smallest over that time, an indication that California could begin to add production in the next couple of months. Meanwhile, the upper Midwest continues to have steady growth.
Ledman reviewed the Margin Protection Program and said she thinks the margins will “keep cows milking” and slow down dairy closures.
“We can actually ski in Iowa,” she said. “We can go from one corn pile to another, there is so much corn on the ground.”
U.S. milk prices have finally come into line with global prices. Imports are not as attractive now, and U.S. dairy products are competitive in the export market.
Ledman said the Russian embargo really affected European cheese.
“Since the Russian embargo, the U.S. is the largest cheese importer of the world,” she said, and Mexico is the largest importer of U.S. milk powder.
“As China is to New Zealand, Mexico is to the U.S.,” Ledman said. “Mexico is our largest importer of nonfat dry milk. We don’t want a wall to prevent it.”