Two global economic forces have converged to propel milk price projections even higher for 2014: Continued strong demand for dairy and higher production costs. As a result, USDA's latest All-Milk price estimate for 2014 pushed past the $20 per hundred pounds of milk threshold in December's estimate. With a $20.10 midpoint, USDA economists project a range of $19.70 to $20.50 per cwt. or $1.69 to $1.76 per gallon. Greater demand for butter, milk powder and whey are all driving this economic bus.
While feed costs in the U.S. have moderated, expenses are still running high in other major dairy-producing countries. In traditionally low-cost regions like Ireland, Australia and New Zealand, land price in these grazing areas continue to alter the cash flow. Since 2002, dairy land prices have doubled in Ireland, tripled in Australia and New Zealand, and grown sixfold in Brazil, according to Rabobank economists. As land values grow, pasture-based farmers must maximize their resources to achieve adequate return on investments that support the family business. That can be accomplished by buying more feed, using more energy and fertilizer or incorporating other efficiencies.
Just how much have growing demand and rising cost structures raised milk price projections? USDA's first 2014 estimate in May had a $19.35 midpoint (range of $18.85 to $19.95). That estimate dipped to $19.15 in August and has since rebounded. The December estimate is 75 to 95 cents higher than May to August estimates.
As far as global dairy demand is concerned, the U.S. continues to make inroads into dairy export markets. In just 10 months, dairy exports have already topped last year's record. At the current pace, U.S. dairy exports will top $6.6 billion, which would be 30 percent higher than the prior year. On a total solids basis, October exports were 16.3 percent of U.S. production; imports were 3.4 percent.
