WASHINGTON, Feb. 25, 2015 – Less than one-fourth of U.S. dairy farmers appear to be eligible for payments from the new insurance-like Dairy Margin Protection Program (DMPP) if milk prices continue depressed through spring, according to USDA projections at last week’s Agricultural Outlook Forum.
USDA sees a 2015 all-milk price average in the range of $17.40-$18.10 per 100 pounds, off from last year’s record $23.98 and the lowest since 2010, said Shayle Shagam, an analyst with the World Agricultural Outlook Board (WAOB). Although producers will see lower feed costs, acting USDA Chief Economist Robert Johansson says the price decline will come from steadily increased production and lower exports. The DMPP, created by last year’s farm bill, is designed to pay out when the margin between feed costs and milk prices falls below set levels.
Just over 50 percent of licensed dairy operations enrolled in DMPP for 2015 and 55 percent of those bought coverage for margins more than $4 per 100 pounds, Shagam pointed out. As of mid-February, he said, a DMPP “decision tool” used by USDA projects margins at or near $8 per 100 pounds for the first six months of the year before margins increase in the second half. All farmers who enrolled get $4 coverage at no cost and could buy up to $8 additional coverage.
Milk production in 2015 is forecast to increase to 211.5 billion pounds, nearly 2.7 percent higher than 2014. “Larger supplies of dairy products and weaker exports are expected to pressure prices,” Shagam said. “Milk prices in 2014 were record high, and prices in 2013 were the third highest on record.” Feed cost-milk price margins were the highest since the mid-2000s; farmers added 99,300 milk cows and boosted milk per cow by 2 percent, the fastest growth since 2010.
However, U.S. dairy exports declined late last year after Russia banned imports from the United States, the European Union and Australia, all significant exporters, and China reduced its purchases of U.S. milk powder in response to increased competition from other countries.
Nevertheless, export weakness is seen as a short-term development. “Dairy exports, which have shown remarkable growth over the past five years, are expected to fall slightly in 2015,” Johansson said. “Over the next 10 years, however, dairy product exports are expected to grow 34 percent.” USDA projects declines from 2014 of 11 percent in milk fat and 3 percent in non-fat solids.
Other speakers at the forum expressed similar views. Any meaningful growth for the U.S. dairy industry will depend on its ability to compete in the export market, said Jay Waldvogel, senior vice president, strategy and international development for Dairy Farmers of America. That’s due in part to the relatively flat domestic market for dairy products, which has increased only 0.4 percent annually for the last decade, while milk production has gained about 2 percent a year.
Over the past decade, he said, the locus of U.S. milk production has moved to the West and Southwest, closer to likely future growth markets in Asia and Latin America. Compared with other dairy product exporters, the United States has several competitive advantages, Waldvogel said. Although New Zealand is the lowest-cost producer on average, gains thee are limited because land costs the equivalent of $15,000 an acre and labor needs to be hired from the Philippines. European dairy growth is constrained by land costs of $20,000 an acre, “the same labor issues and even more intensive environmental regulations,” he said. Shagam pointed out that “New Zealand is currently facing dry conditions which may limit production growth if they persist.”
The United States is “the most competitive in the value of farmers with the expertise to actually run a dairy farm,” Waldvogel insisted. “Having people who know how to run a dairy farm is a key critical competitive component for the United States.”
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