Recent growth in U.S. milk supplies has kept pressure on U.S. milk prices, but the situation could be much worse. Recent USDA projections places 2017 U.S. milk output 4.2 percent higher than just two years ago, the highest two-year growth rate since 2008. Yet the USDA price outlook calls for higher All-Milk prices this year than the two previous years.While many factors in addition to production levels are at play in determining milk prices, international supply developments have played a large role in current U.S. markets. During 2016, milk supply growth outside of the U.S. was nonexistent. In fact, excluding milk production from India (a large milk-producing nation with virtually no presence in international trade), cow milk production in the rest of the world declined 1.1 percent. And projections from earlier this year by USDA’s Foreign Agricultural Service see 2017 milk supplies around the world (excluding the U.S. and India) remaining below 2015 levels. The two largest exporting nations of dairy products are expected to post minimal milk production levels this year versus 2015, with the European Union 1.5 percent higher and New Zealand up 0.1 percent. Other exporting nations are down: Australia (-3.1 percent), Argentina (-8.2 percent), and Ukraine (-3.6 percent). While this recent stretch appears to have been an opportune time for higher growth rates in U.S. milk production, the duration of depressed international milk supplies is likely to be short. Prior to 2016, world (not counting U.S. and India) milk supplies only declined three times since 2000, with an average growth rate from 2010 to 2015 very similar to U.S. output increases the last two years. As the rest of the dairy-exporting world resumes milk production growth, market competition will intensify. With the concerns of a stronger U.S. dollar and future trade policy still hanging over the U.S. dairy industry, it is best to think of the current combination of U.S. milk prices and production growth as a short-term phenomenon rather than a new trend. It will become increasingly difficult to keep milk prices from falling if milk production expansion continues.
(c) Hoard's Dairyman Intel 2017
May 8, 2017