A dairy price correction is coming with a reduction in U.S. dairy cow numbers, elimination of recombinant bovine somatotropin and an increase in fluid consumption.
The fairer milk prices of $20 to $24.60 per hundredweight dairy farmers received in 2014 were the result of many global conditions. Strong demand and reduced cow numbers were two main price drivers.
Historically, whenever the U.S. herd grows over 9.3 million cows, supply overcomes demand and milk checks shrink considerably. Once again there is more than 1.2 billion pounds of total cheese in storage, which is the highest since 1984.
Dairy farmers earned roughly $13.7 billion less in 2015 when compared to 2014, money that would have been spent. When prices are good, farmers pay down debt or expand cow numbers. When prices fall, many add cows to help maintain a profit margin until the market corrects again. This typically results in two bad years to one good year, and the cycle continues.
I see a correction in milk prices this time around from the demand of dairy processors, large grocery and food chains. Notice has been given to many dairy plants that they do not want milk or milk products that are from cows treated with recombinant bovine somatotropin (rBST). Production from 930,000 cows will significantly drop if only 10 percent of the 9.3 million cows milking are receiving shots. Half of those I suspect, 465,000, are not pregnant and will be culled from herds. A monthly 700 million-pound national drop in production for at least four months is huge.
Backing the U.S. dairy herd size down to 8.835 million head from December to April 2017, or longer, will flood meatpacking plants. For once, this leaves no reason not to lower retail beef prices to consumers.
Money from a strong demand for replacement heifers will blow through farmers checkbooks as the cows sold will have to be replaced to satisfy loan agents. I think a return to $20 milk is on the horizon.
Consumers will have the choice of “milk” or an “organic milk” dairy product. Hopefully more parents will choose nature’s milk for their children instead of a can of hard-to-pronounce ingredients. An increase in fluid milk consumption alone will be significantly good for everyone in the long term. PD
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