The past years brought a lot of price fluctuations not only on the world level but also to the U.S. dairy market. This raises the key question of how future global dairy developments will impact American producers.
The “IFCN Long-term Dairy Outlook” shows four possible scenarios of how demand, supply, and trade could develop from 2019 to 2030 globally and also on regional and country levels. Assuming growing demand (expressed by the willingness to consume dairy, positive perception of dairy, and marginal substitution of vegetable fat for animal proteins) as well as political stability (such as positive growth in Gross Domestic Product [GDP], free trade, and positive climate for business), IFCN forecasts within the most plausible scenario a 2.3 percent annual growth in milk supply and demand.
Furthermore, a key result of the outlook constitutes the predicted long-term price of $18.60 per hundredweight (cwt.) of energy-corrected milk (ECM is based on 4 percent fat and 3.3 percent protein). This level is needed to enable a future milk production to balance out demand. Though this milk price is 15.5 percent higher compared to the milk price projection from last year, it corresponds to the level of $18.14 per cwt. from 2007 to 2014.
The drop in milk price during recent years can be traced back to certain events such as reduced Chinese imports, the embargo Russia imposed on foreign dairy products, falling energy prices, and an extra flush of milk from the EU in 2015 creating additional global supply. In total, supply and demand grew from 2007 to 2017 by 24 percent, reaching a level of 864 million tons of ECM in 2017.
The growth factors
The overall growth story of the dairy industry is expected to continue . . . milk production as well as demand. Total growth could be 35 percent through 2030, reaching a total level of 1,168 million tons of ECM. This depicts an absolute increase by 304 million tons of ECM. This is about three times the current U.S. milk production.
More than half of the production growth is expected to occur in South Asia as regional supply will climb by 64 percent to 392 million tons of milk. For the most part, this milk will be consumed at the household level and absorbed by domestic and informal markets.
The future demand will be mainly driven by population growth and higher per capita consumption, as an additional 16 percent (1.2 billion people) of potential consumers will demand milk products. Global per capita consumption will grow by 42 to 297 pounds milk equivalent per person.
Main factors for this development are the ongoing urbanization in line with the shift of preferences toward processed food and the growing purchasing power, especially in developing regions. Taking a look at South, East, and Southeast Asia, self-sufficiency will not be reached as a large amount of dairy products will be lacking to cover regional demand. This represents an import demand potential of around 50 million tons milk equivalent.
The milk producers
Considering the rising demand for processed dairy products, a growing importance of trade resulting in a shift in dairy production to more efficient countries can be detected. Until 2030, the net trade is expected to expand by 73 percent up to 95 million tons of milk (ECM). This entails opportunities for export countries, which need to provide dairy products to the milk deficit countries.
The majority of the milk, however, will still be consumed where it is produced. Consequently, besides foreign markets, the dairy industry is required to strongly answer the local consumers’ needs and demand patterns.
When looking at the growth in worldwide dairy cattle numbers, IFCN estimates a 12 percent gain to 417 million by 2030, mainly driven by South Asia and Africa. These two regions will house 66 percent of the total dairy animal population.
Driven by milk per cow
Nevertheless, with the exception of Oceania, where constant numbers are foreseen, expanding numbers of animals are expected in all regions. Apart from this development (0.9 percent annual growth in dairy animals), the global surge in milk production will be driven by a strong improvement in global milk yield (1.6 percent per annum).
Given these trends, fewer but larger farms will become the norm. Overall, 14 million farms may exit the business over the next 13 years. This indicates ongoing consolidation as fewer farms will produce a greater amount of milk.
Situation in the U.S.
According to USDA, cheese and yogurt will drive growing per capita demand in the future, while fresh milk consumption will continue to diminish.
The “IFCN Long-term Dairy Outlook” suggests a constant growth rate in total U.S. milk consumption through 2030, with a slight gain in the per capita consumption from 643 pounds in 2017 to 661 pounds milk equivalent per capita in 2030.
The predicted gains in the productivity per cow will range from 22,941 pounds in 2017 to 26,000 pounds in 2030. This is mainly caused by two factors. First, smaller, less productive herds will exit production. One reason will be that some processors will no longer accept small amounts of milk or the average costs per cow are simply too high. Second, more productive farms will keep adding animals to their barns and apply new technologies, such as better genetics and enhanced information monitoring for their herds.
Adding to this, we will see growing animal numbers on a national level as well as an unstoppable decline in farm numbers impacting the supply. The decline in farm numbers from 130,000 in 1996 to 37,468 in 2018 will continue falling to 24,200 in 2030, which leaves farmers the opportunity to keep on adding cows to their barns to an average of 400 head per farm in 2030.
As a result, the U.S. dairy industry could satisfy growing world demand by exporting more high-quality products. After being self-sufficient in milk production for the first time in 2006, the level of self-sufficiency will steadily climb to 113 percent in 2030 . . . leaving a lot of milk available for export.
Looking to the horizon
The “IFCN Long-term Dairy Outlook” is a powerful tool to analyze future developments in the dairy world. Important points for the future: There will be more import-dependent regions and thus will require more production in the exporting countries to meet the rising demand for milk and dairy products.
These results are based on the “IFCN Long-term Dairy Outlook” for 2018. Shortly, the new “IFCN Long-term Dairy Outlook” will be published, featuring projections until 2040.