Many factors play a role in determining milk prices, and one of them is the global dairy market. The good news for U.S. dairy is that worldwide demand for our products continues to grow. In 2022, 18% of the nation’s milk was sold on the export market.
“Exports continue to be a very interesting category for the U.S.,” said Mark Stephenson, the recently retired director of dairy policy analysis at the University of Wisconsin-Madison. “Last year, we exported more dairy products than we ever had before.”
During the January Hoard’s Dairyman monthly webinar, Stephenson explained that exports are an area we need to pay attention to, as they can impact milk prices.
“Exports are not just a pastime, or something that we do as a hobby,” he said. “Export markets are a real customer for us.”
Nonfat dry milk and skim milk powder leads the way when it comes to our exports. Although sales of powder were down a bit in 2022, Stephenson said this is still a major export area for the U.S., and in some years, we export up to 80% of our powder.
Cheese used to be a small export category, but it has grown in volume in recent years and Stephenson expects this to continue. From lactose to whey to butter, the U.S. saw export growth in all categories except nonfat dry milk and skim powder.
He reminded the audience that there is competition for dairy exports, and the U.S. is a relatively young player in the market. Fortunately, global production has struggled to keep up with all the dairy product the world wants.
When the U.S. dollar is strong, as it was early last year, it is harder for us to export dairy or other products because they look more expensive compared to weaker currencies. As of late, the dollar’s value has been weakening, and Stephenson said the export outlook will improve if that continues.
Unfortunately, milk prices have room to fall
Elevated milk prices helped offset the rising costs of feed, fuel, and labor on dairy farms last year, but that situation is likely coming to an end.
“High milk prices yielded decent margins for most producers in 2022, but I am not sure that will be the case in 2023,” Stephenson said.
Right now, futures markets show milk prices to be about $4.50 lower in 2023. Stephenson said the Global Dairy Trade (GDT) has a “grumpier” outlook, indicating a $5.50 reduction in milk price. Averaging those two predictors, Stephenson expects the All-Milk price to be around $5 less than it was in 2022, with an All-Milk price landing somewhere in the $20 to $21 per hundredweight range for the year ahead. With similar costs as the past year but much less income, Stephenson noted that it appears this year will be more difficult for many farmers.
To hear more insight from Stephenson on milk prices, dairy exports, and more, check out the Hoard’s Dairyman webinar, “The dairy situation and outlook for 2023.” This webinar was sponsored by QLF.