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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