The global dairy market is shifting and with that shift U.S. dairy prices are declining after a strong year. Across the board, prices for everything from milk futures to cheese and dry whey are softening. (PDF, 350KB) Experts expect this trend to carry over into the next quarter and beyond, starting the new year on a sour note.
Though the past decade has seen a dramatic rise in dairy exports from 4 percent on a milk equivalent basis in 1996 to more than 15 percent this last year, this trend may not be duplicated in the coming year.
In an article appearing on Ohio State University’s website, associate professor Cameron Thraen said, “At the end of 2014, U.S. dairy commodity prices are making a significant realignment with lower world prices, and it is natural to assume that this realignment will result in dramatically lower income … and could bring storms to the U.S. dairy export market in 2015.”
With Russia enforcing its ban on imports from key suppliers and China’s lower-than-expected imports due to slowing economic growth, the recent U.S. dairy exporting boom is cooling down. With import numbers dropping, December saw the price of powders drop 15 percent from September numbers, with cheese losing less than half that number. Butter remained mostly unchanged.
Increased supplies from markets including Australia, Southeast Asia and Europe are contributing to lower worldwide prices and a decrease in demand for U.S. products overseas.
While demand is down, production is up. Last year’s strong dairy market encouraged farmers to expand herd size, and farmers who are harvesting from those larger herds are now creating a supply-side stock. Rabobank Dairy Quarterly said that these low prices, especially a floored powder price, may help clear the market of the overstock and equalize the uneven supply and demand.
Over time, this is expected to lead to a gradual tightening in the 2015 market. A weak showing in southern hemisphere markets may be needed to tip the scales and allow some price recovery near the fourth quarter. PD
—Summarized by Progressive Dairyman staff from cited sources