The Changing Landscape of Milk Markets
A few dairy coops and plants have implemented some limitations on milk production from patron farms in the attempt to limit milk receipts exceeding plant capacity. Over the past few years some plants have initiated various quotas based on a farm’s previous milk production during the past year or even down to the past three months in cases where these limitations were implemented prior to spring flush this year. Most of these are temporary to get plants over the hump of heavy milk production. After spring flush, many of these will be lifted as plants will have room and will welcome as much milk as they can get providing there is good demand and inventory declines.
Strong milk output and the desire of farms to expand certainly is changing the landscape. Milk prices, although lower than most would like, are high enough to encourage expansion by some. Exports of dairy products are playing a significant role in milk prices and have had a definite part in keeping milk prices significantly above a year ago. This has increased milk production and also created some issues for plants handling this increased production. Milk is again being dumped in some areas or is being offered at a steep discount to those willing to purchase it. Cheese is being offered at a discount in order to move it to the market rather than build inventory. These measures are being taken now in order to get over the peak of milk output for the year. It is a temporary fix to a present problem.
There are other changes taking place in the industry as well. The recent issue with Canada creating a separate class of milk which resulted in some plants not being able to export ultrafiltered milk to the country created an issue with some farms receiving letters that their milk would no longer be picked up. Most of those were able to find another home, but it did send a warning shot across the bow. Exports are very important and the loss of any export outlet can have a substantial effect on farmers. Some of those farms that were able to move to another plant have taken a hit on milk prices for a period of time from a few months upward to a year, before they will be receiving the total value of what the milk is worth. This is not right, but it does allow them to remain in business.
Now Dairy Farmers of America’s Dairy Marketing Services (DMS) sent letters to independent milk products that the cooperative will no longer accept their milk later this year unless they join DFA or find another market for their milk. These independent farms will have six months to make a decision as to their intentions. This will affect farms in Ohio, Indiana, Pennsylvania, New York, and Kentucky which contribute about 10 percent of the milk marketed by DMS in Federal Order 33. Steadily increasing milk production has caused a supply/demand imbalance in the region prompting the action to implement this ultimatum. DMS does not want to be responsible to market milk from nonmembers which has resulted in substantial changes in marketing adjustment charges to members over the past two years.
Have the changes in milk marketing and self-imposed quotes run their course or is this just the beginning? As long as milk production continues to grow at the rate it is, there will be more actions like this being taken. USDA estimates milk production to increase 2.4 percent in 2018 over the already projected increase of 2.1 percent growth of 2017. Both domestic and international demand must increase or it may get more ugly next year.