December 12, 2016

Milk Price Improvement Hinges on Exports

 |  By: Anna-Lisa Laca

Could milk prices rebound? Dairy farmers around the country hope so. Fortunately, a new report from CoBank shows modest improvement for milk prices in the future as a result of growing export opportunities. The report shows dairy farms across the country expanding to accommodate a potential price increase.

“We’re seeing dairy farm expansions, meaning producers are hopeful that prices will increase from today’s levels,” says Ben Laine, senior economist at CoBank. “These dairies are banking on the future and on global growth. We believe that there is cause for cautious optimism given prospects for strengthened international demand and the industry’s long track record of innovation.”

According to USDA, U.S. dairies will produce more than 225 billion pounds of milk in 2020. Given the relatively flat nature of domestic demand, selling that milk will rely on export markets, according to Laine.   He says Asia, Latin America and Africa are specific targets for export market growth given population growth and increased middle class consumption in those regions. The U.S. Dairy Export Council says dairy exports have nearly doubled in 10 years. Good for getting rid of milk, but not great for adding to farmer risk load. As the export market becomes a bigger piece of the pie, producers are exposed to increased currency risk and geopolitical events.

“The outlook for the next several years is positive, but precarious,” Laine says.

To take full advantage of export markets CoBank says the U.S. will need to position itself more strategically to compete with other “mature dairy producing regions” like the EU.