More Exports, Lower Production Needed to Turn Milk Prices
Class III futures prices aren’t brightening dairy farmer moods looking into 2018, say Mike North, who will speak at this year’s Milk Business Conference which kicks off in Las Vegas today.
North, with the Commodity Risk Management Group, sat down with U.S. Farm Report Host Tyne Morgan ahead of the conference this morning to get his take on the near-term outlook for dairy prices. (View the entire interview on Facebook here.) “I hate to boil it down to simple supply and demand, but that’s really the answer,” says North. “The reality is we have too much milk production.
“In nearly every [dairy] product category, we’re carrying much more than we were over last year, and we don’t have the domestic consumption to handle it all… While exports are coming and exports are growing, they are not large enough to claw back the big inventory builds we have made over the last years,” he says.
North says increasing production here in the United States, Europe and New Zealand is the problem. “The U.S. is producing more milk on a 1 ½% basis, month after month, year after year for four years running. The world is on the same pattern, and we’re running up against too much production,” he says.
Nothing short of a Black Swan event, in which markets or production are disrupted, will likely change market conditions in the short term. North notes that that there have been some smaller swans occur recently. For example, New Zealand had a rough start to it grazing season this fall, which slowed milk production. Europe has had bad weather in Germany and France, and a phosphorus reduction program in the Netherlands has slowed milk output there. In the U.S., it might be that dairy quota programs at the co-op level might kick in and cap production here.
In the meantime, though, production keeps growing. And markets remain soft, with Class III prices averaging just $15.80 for all of 2018.