Dairy Prices Will Be Lower in ‘15

Volume 139, No.27, Friday, December 26, 2014

Milk prices for 2015 have been lowered from earlier forecasts. Milk prices are forecasted lower for two reasons: lower dairy exports and a higher level of milk production.

The Class III price set a record monthly high every month this year except for December and will average about $4 higher for the year than last year. These records were driven by milk production increasing less than 2 percent for the first half of the year, good domestic sales and record dairy exports.

But, exports are now declining. Milk production has been strong amongst major exporting countries. USDA, FAS estimates for 2014 milk production over 2013 are: Australia +3.2 percent, EU-28 +4.7 percent, New Zealand +7.4 percent, US 2.4 percent and Argentina the exception with -0.9 percent for a total growth of 3.9 percent.

While world milk production was higher two factors softened world imports of dairy products: the Russian ban on dairy imports from the EU and China reducing its imports from the first part of the year by more than 50 percent. China is the world’s largest importer of dairy products and Russia ranks third with the combined total of these two countries accounting for about 20 percent of world imports.

The net result has been a drop in world dairy products well below US prices making US no longer competitive. The strengthening of the US dollar is also impacting exports. US dairy exports were setting new records accounting for 17.7 percent of US milk production back in March.

But, with falling world prices exports started to slow. Butter exports through April were more than double the year before, but by May they fell below year ago levels. NDM exports fell below year ago levels by August and cheese by October. October exports compared to a year ago were down 82 percent for butter, 3 percent for cheese, 25 percent for nonfat dry milk and 9 percent for dry whey. October exports had fallen to 14.4 percent of US milk production.

While exports were declining higher US prices were attracting dairy imports. Quota imports January through November compared to the same period last year were 42 percent higher for butter and 12 percent higher for cheese.

Dairy exports could show some recovery during the second half of 2015. Milk prices are considerably lower for all major exporting countries which should slow the growth in world milk production in 2015. However, relatively low feed prices will help to sustain milk production. Russia is to stop the ban on EU imports in August, but this is uncertain. As China works off accumulated dairy stocks they are likely to resume importing by the second half of the year, but at a more conservative level. But, for the year US dairy exports will be lower than 2014 exports.

USDA estimated total November milk production to be 3.4 percent higher than last year. Milk production for the past five months was 3.5 percent higher than a year ago. Milk cow numbers have been increasing slowly with November numbers just 4,000 head above October putting the increase since the end of last year at 78,000 head. November cow numbers were 0.9 percent higher than last year.

Fourteen of the 23 reporting states had more milk cow than last year. For the year cow numbers are estimated to average 9.255 million head, 0.4 percent higher than 2013.

Improvement in milk per cow has been a much bigger factor for increased milk production than more cows. November milk per cow was 2.4 percent higher than last year. For the year milk per cow is estimated to average 22,261 pounds, 2.0 percent higher than last year.

The December Class III price will be near $17.75 compared to the peak of $24.60 back in September and $21.94 in November. But, as we move into 2015 increased milk production and lower exports means milk prices will fall further. By January the Class III price could be down to about $16.30 and falling to the $15’s February through August before showing some strength and peaking in the high 16’s in October or November.

Some forecasters have the Class III price falling below $15 this spring which is not without a possibility. Not until the growth in milk production slows to 2 percent or less and/or exports pick up can we expect milk prices higher than this. Lower feed cost will ease some of the pain of lower milk prices, but margins will be far from the record margins experienced this year.

One positive is an expected stronger growth in the economy in 2015 and dairy product prices will be lower, both of which should result in good growth in domestic sales to support milk prices. BC

Dr. Bob Cropp is the Professor Emeritus at the University of Wisconsin-Madison


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