WASHINGTON, Nov. 2, 2016 - After months of
falling dairy prices and warnings of supply gluts from lawmakers and farm
groups, the situation for U.S. milk producers is expected to improve in 2017,
according to government and industry officials.
USDA has agreed twice in the past few
months to make emergency purchases of $20 million worth of cheese to bring
relief to the industry, but it will be market forces that push prices up
slightly next year, sources said.
Since January 2015, the
average all-milk price has been hovering around $16 per hundredweight, but by
the end of 2017 that average should be a full dollar higher, according to Peter
Vitaliano, vice president for economic policy and market research at the
National Milk Producers Federation.
While $17 per hundredweight
isn’t nearly what farmers were getting in 2013
and 2014 when the price was
consistently over $20 (It nearly reached $26 in September 2014), it would still
be welcome after the past 18 months of very low prices.
Vitaliano, speaking Tuesday
in Nashville, Tennessee, at the annual joint meeting of NMPF, the National Dairy Promotion and Research Board, the
National Milk Producers Federation and the United Dairy Industry Association,
said prices will be going up even as U.S. farmers produce more milk by adding
to their herds.
The prices for nonfat dry
milk, dry whey and cheese continued to drop over the past 18 months, mostly due
to a collapse of the international market after the boon years of 2013 and
2014, Vitaliano said. “The prices of those products, because we export so much,
are directly tied to world prices,” he said. “World prices came down and they
took U.S. prices with them.”
But prices for one
significant product – butter – have risen sharply, he said. The average butter
price and the value of milk fat have gone up more than 100 percent in recent
months because of rising domestic demand. “That’s due to the fact that the U.S.
consumer has discovered that … consuming animal fat and milk fat in particular
is actually not that bad for you,” he said. “They’ve come back to milk fat big
time and that has really tightened the supply and demand situation.”
And the international
downward spiral is changing course, according to USDA livestock analyst Shayle Shagam. Several years ago, China cut
back on imports and Russia banned dairy from the EU and Australia, just as the
U.S. and other producing countries had ramped up production, Shagam said. Many
of those foreign producers have now cut back production. U.S. exports of nonfat
dry milk and dry whey are increasing and are expected to rise further
throughout 2017, Shagam told Agri-Pulse.
“That’s going to help tighten up
world supplies,” he said. “In general, international markets are strengthening.
What you have is tighter world supply now and a little bit of a stronger
demand, which is helping bring up U.S. and world prices.”
Demand – both domestic and international –
will be strong in 2017, he said, and that
will translate into even more dairy cows in production in the U.S. The latest
forecast from USDA’s Economic Research Service
expects an average of 9.395 million cows in production next year, up from 9.345
million in 2016 and 9.317 million in 2015.
Domestic demand is on the rise
and companies are building new dairy processing facilities to make cheese and
other products, said Shagam. Those new operations are already being built and
many of them are expected to come online next year, prompting farmers to begin
adding cows to their herds.
Shagam agrees with Vitaliano that the price of milk will rise in 2017, but not
nearly as much, and he expects prices will drop before they bounce back up by
the end of the year. “Because we’ve got a lot of stock on hand and a lot of
production coming online, prices are coming down, so we’re becoming more
competitive with whey and nonfat dry milk and that will help push our exports
back up.”
Those increased exports will
help the U.S. industry reduce stocks, he said, and that will push prices up by
at least 15 cents per hundredweight by the end of 2017.
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