Much of the focus on 2017 milk prices has centered around the expectation of growth in U.S. dairy exports. In USDA’s December 2016 dairy forecast, economists project that 2017 U.S. dairy commercial exports will grow by 1.4 billion pounds on a skim solids milk equivalent basis relative to 2016. That’s similar to the estimated 2016 annual growth of 1.4 billion pounds. For a point of reference, the annual average growth in exports over the 2000 to 2015 period was 1.9 billion pounds.

Exports do remain a critical piece of the puzzle in determining this year’s milk prices, but growth in domestic use of milk and dairy products is also important.

USDA projects a 3.3-billion-pound annual increase in domestic commercial use of milk on a skim solids milk equivalent basis in 2017. That comes on the heels of estimated annual growth of 3.7 billion pounds in 2016. As a comparison, the annual average growth over the 2000 to 2015 period registered 1.5 billion pounds.

Total fluid milk sales have been basically flat during the first 10 of months of 2016. That may not seem like good news, but compared to the annual declines of 1 billion pounds during the previous three years, it is a move in the right direction. Whole fluid milk product growth of 530 million pounds for the first 10 months of 2016 has provided much of the positive news in the beverage category.

Cheese commercial disappearance has been another bright spot in 2016 with total disappearance up nearly 350 million pounds in the first 10 months. Continued gains in cheese disappearance in this new year will be necessary to meet the higher total milk equivalent disappearance or sales projected by USDA.

Bottom line: A large proportion of the growth in U.S. milk production expected in 2017 must be absorbed by U.S. consumers via dairy product purchases. If domestic demand strength falters, 2017 milk prices could be under more pressure than most anticipate. Recent positive information on the U.S. economy in terms of reduced unemployment rate and stronger consumer confidence will need to continue in 2017 to keep domestic use of dairy products growing strongly and fuel increases in producer milk prices.

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(c) Hoard's Dairyman Intel 2017
January 9, 2017
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