Brexit Could Cause Milk Prices To Remain Suppressed [VIDEO]
As Britain voted to leave the European Union (EU) this week in a vote coined Brexit, markets around the world crashed in the uncertainty. Unfortunately for dairy farmers, Mike North of Commodity Risk Management Group says Brexit will likely remove any hope for an improved milk price in the near term because of the strengthening dollar.
Despite recent optimism of improved milk prices, dairy markets could run into trouble because of Brexit, according to North. Meanwhile, most analysts think the grain markets will only be impacted in the short term.
“The reality of dairy versus the grain markets is that grain supplies in the short run have tightened up,” he says. “Dairy is an opposite situation where inventories are still very staggering.”
Farmers across the country continue to try to out produce the low milk price, and as a result, this week’s USDA milk production report showed a production increase of 1.2%.
While Britain’s currency plummeted Friday, the dollar gained strength, lots of it. ProFarmer’s Chip Flory says the dollar was “on a moon rocket” Friday. That’s going to be the main cause of heartburn for dairy markets, according to North.
“The dollar strengthening takes the edge off of any opportunity we might have had,” he says.
While we will likely still move powder products on export markets, North says higher value products like cheese and butter won’t be able to compete in a global marketplace.
“Our high value products, cheese and butter, that lead pricing of our Class III and Class IV milk will be an area we fall out of bed,” he says.
For British dairy farmers, however, Brexit looks more like an opportunity than a hurdle.
“We’re in an export market,” North says. “The reality is if the U.K.’s currency falls they become more competitive than their EU counterpart. As they do that they have a greater avenue of getting more of the market share.”
Dairy farmers there will also be permanently out of former quota oversight.
Brexit Vote Weighs on Milk Prices