Scott Brown, from the Food and Agriculture Policy Research Institute, spoke at the 41st Annual Dairy Day in Monett, Mo., March 2. Brown, who also works with the University of Missouri and Texas A&M, began by saying that demand is the driving force for products. If demand in 1980 was 100 percent, 1996 went down to 80 percent and 2003 fell to 77 percent. The years 2007 and 2008 saw record high milk prices due primarily to exports. When the world economies crashed in 2009, there went the exports. High feed prices added to the financial hardship dairy farmers face.
Looking back at the crash of 2009, Brown insisted, “We can’t find any policy that would have helped during that time.” The volatility was, and is, unavoidable without a very real down side. Price supports get rid of some volatility, but don’t insure good prices.
Milk Prices Better By 2013
Consumer Confidence and Gross Domestic Product for the US are two of the indicators used to project milk prices. Consumer Confidence in mid-2009 was in the 20’s. It is now back to the 50’s. The GDP is not expected to reach the 2008 level before 2011 to 2013. That translates into a forecasted Class IV milk price of $14.20 for most of 2010.
Brown pointed out that it could be worse. Production costs increased more for California than in the Midwest. Brown also warned, “Expect higher feed prices to continue.”
When it comes to exports, we have to play in the world market, said Brown. We already compete with our neighbors and the one who produces milk with the least expense makes the most money. We are now in competition with dairy farmers in different countries. Farmers have to pay attention to countries like Australia, which produces a small amount of milk but supplies enough to contribute to price volatility.
Brown spoke briefly about the New Zealand trade agreement, which he doesn’t foresee any action on in the near future. If the U.S. imports more dairy product from New Zealand, it would lower prices. The bigger picture is that it should open markets that are profitable for the U.S. If we don’t import any dairy, that would be helpful for the milk price here, but only for the short term, because we couldn’t export. The weaker dollar helps us export product.
In the international market, China has 1.3 billion people. “There are some possibilities there,” Brown said, “they should be spending some of their dollars on protein sources such as dairy products.”
Brown expects higher prices, but not much. The number of milk cows in the U.S. has stayed almost flat over the last 10 years. Because farmers quit getting rid of cows, supply is not down and yields are still up. Supply is easier to increase than to decrease.
Higher prices mean lower consumption. Demand for fluid milk recovered when the price fell. Brown believes there are opportunities to have price increases after June or July. The number of cows and production has to be reduced, or demand increased to make a difference in price.
For now, dairy farmers should focus on continuing to watch inputs, and lowering overhead costs.
