It's been up, up and up for dairy product prices since January 2014 . . . from a consumer's perspective. That all changed in April 2015.
"In April, we saw the first drop in dairy's portion of the consumer price index since January 2014," Bill Brooks told those attending INTL FCStone's 12th Annual Dairy Outlook Conference in downtown Chicago, Ill.
Given the combination of domestic and international demand, this reduction in consumer prices for dairy could be a start of a new trend. In April alone, dairy exports on a volume basis were down 11 percent; on a dollar basis, international sales were off 26 percent.
"I am not convinced that we can continue the growth in dairy product sales (domestic and exports) that USDA is predicting this year," suggested Brooks. Again, that is in part due to exports.
"Exports will be a mixed bag this year, depending on the commodity," said the INTL FCStone economist.
Of course, if this forecast unfolds, it would mean reduced milk margins for dairy producers.
"Weather and reduced profitability will lead to less growth in total U.S. milk production in 2015," said Brooks. "Additionally, we could see below-average gains in milk per cow primarily due to reduced margins in the western U.S. That is because when income over feed costs fall below $8 per cwt., we generally see slower expansion in the U.S. milk supply," noted the dairy economist.
"On the plus side, cheese prices have been more resilient than I expected . . . likely because we didn't have burdensome stocks in recent years," said Brooks. "Because of that, I am slightly higher on my Class III price forecast at $16.52 per hundredweight (cwt.) when compared to USDA's $16.35 for this year."
(c) Hoard's Dairyman Intel 2015
June 22, 2015
