While cheese exports are currently approaching record highs, farm gate milk prices are not exactly doing the same. University of Wisconsin-Madison economist Mark Stephenson said that to understand this phenomenon, we must recognize that exports have served as “another customer” during a period of time when U.S. milk production has climbed from 170 billion pounds to 223 billion.
As an example, he reminded the audience of the September 15 Hoard’s Dairyman DairyLivestream about the development of Greek yogurt a decade ago. This innovation encouraged a whole new sector of consumers to reach for dairy.
“There was more milk needed for that, and it was great; it helped to elevate the milk price,” Stephenson said. “But pretty soon, you can supply more than enough milk for that Greek yogurt demand and now you’ve got a downward pressure on prices.
“The same thing is true for exports. Exports help us grow. It’s not always a matter about bringing the price up,” he continued. “It can, in the short term, do that if we get a little bit tight, but think about it more in terms of bringing the revenues up because the volume of milk is much bigger.”
Differentiating further, Stephenson said, “Your revenue at the farm is much bigger because of export sales than it would have been otherwise. Price is a little more indifferent.”
Less negative PPDs?
Stephenson also discussed how the federal order system and current class pricing system affects U.S. dairy’s competitiveness on selling product on the world export market.
“I’m not sure it’s always enhanced our ability for exports, but I’m not sure it’s been a terribly big drag on it either,” he hedged. The retroactive pricing the U.S. system uses can hinder dairy exporters’ ability to market products and settle contracts with overseas buyers.
On the flip side, Stephenson believes continued growth in exports — as is projected to happen — and the investment in cheese processing facilities that has already ramped up to meet that need will be beneficial for dairy farmers.
“I think this drives our Class III and Class IV prices together, so we don’t have as much of the negative producer price differential (PPD) issues and problems,” the economist shared.
To watch the recording of the September 15 DairyLivestream, go to the link above. The program recording is also available as an audio-only podcast on Spotify, Google Podcasts, Apple Podcasts, and downloadable from the Hoard’s Dairyman website.
An ongoing series of events
The next broadcast of DairyLivestream will be on Wednesday, October 20 at 11 a.m. CDT. Each episode is designed for panelists to answer over 30 minutes of audience questions. If you haven’t joined a DairyLivestream broadcast yet, register here for free. Registering once registers you for all future events.