Rising Exports Don’t Affect Milk Prices Much
New research suggests simply expanding dairy exports won’t increase milk prices all that much—maybe a dime per hundredweight for each 1% of components exported.
“Over the long term, the impact per 1% of additional components appears relatively small, about 10¢/cwt, due at least in part to the ability to expand milk supplies to meet additional demand for exports,” says Chuck Nicholson, a dairy economist with Cornell University.
Still, a 10¢/cwt rise in the all-milk prices still equates to about $200 million in the aggregate, based on more than 200 billion lbs of annual milk production. And for a cow producing 23,000 lb of milk per year, it means $23 of added income per year. For a 100-cow herd, that’s $2,300 more profit.
“This analysis focuses on the longer-term, when the impact of steady growth in component exports can be accommodated with growth in milk production,” says Nicholson. “This may maintain an approximate balance between milk supply and demand, mitigating to a large extent impact of the increase in the demand for components for export.”
The analysis also may not reflect the impacts of large, rapid changes in exports. Two such cases occurred in 2014 when milk prices shot up to record levels, and this year when prices plunged due to rapid declines in exports to Mexico and China.
“Our analysis…suggests that the price impacts of steadily growing trade will be minimal, but that aggregated industry revenues and earnings are enhanced as more components are exported,” he says.
In other words, “total milk production, total farm revenues and product sales will increase with component export growth—all good things—but not so much the average milk price,” Nicholson says.
You can read the entire study here.