Record-setting 2014 will give way to declining milk prices well into 2015, according to the monthly Dairy Situation and Outlook report from Bob Cropp, Professor Emeritus, University of Wisconsin-Madison.
The December Class III price will be near $17.75/cwt., compared to the peak of $24.60/cwt. back in September and $21.94/cwt. in November. But, as we move into 2015 increased milk production and lower exports means milk prices will fall further. By January, the Class III price could be down to about $16.30/cwt., falling to the $15s in February through August, before showing some strength and peaking in the high $16s in October or November.
Some forecasters have the Class III price falling below $15/cwt. this spring, which is not without a possibility, Cropp noted. Not until the growth in milk production slows to 2% or less, and/or exports pick up can we expect milk prices higher than this. Lower feed cost will easy some of the pain of lower milk prices, but margins will be far from the record margins experienced this year.
The Class III milk price set a new record monthly high every month in 2014 except for December, and will average about $4 higher than 2013. These record prices were driven by milk production increasing less than 2% for the first half of the year, good domestic sales and record dairy exports. However, milk price projections for 2015 have been lowered for two reasons — higher level of milk production nearly worldwide, and lower U.S. dairy exports.
Milk production has been strong among major exporting countries, with total growth up 3.9%. USDA’s Foreign Agricultural Service (FAS) estimates 2014 milk production compared to 2013 among major exporters will be: Australia, +3.2%; EU-28, +4.7%; New Zealand, +7.4%; and the U.S., +2.4%. Argentina is the exception, at -0.9%.
While world milk production was higher, two factors softened world imports of dairy products: 1) the Russian ban on dairy imports from the European Union (EU); and 2) China reducing its imports from the first part of the year by more than 50%.
China is the world’s largest importer of dairy products, and Russia ranks third, with the combined total accounting for about 20% of world imports. The net result has been a drop in world dairy products well below U.S. prices, making U.S products no longer competitive on the world market. The strengthening of the U.S. dollar is also impacting exports.
U.S. dairy exports had been setting new records, accounting for 17.7% of U.S. milk production back in March. But, with falling world prices, exports started to slow. Through April, butter exports were more than double the year before, but by May they fell below year-ago levels. Nonfat dry milk exports fell below year-ago levels by August, and cheese below year-ago levels by October. October exports compared to a year ago were down 82% for butter, 3% for cheese, 25% for nonfat dry milk and 9% for dry whey. October exports had fallen to 14.4% of U.S. milk production.
While exports were declining, higher U.S. prices were attracting dairy imports. Quota Imports January through November compared to the same period last year were 42% higher for butter and 12% higher for cheese.
U.S. dairy exports could show some recovery during the second half of 2015, although they will be lower than 2014 exports. Russia is scheduled to end its ban on EU imports in August, but this is uncertain. And, as China works off accumulated dairy stocks, they are likely to resume importing by the second half of the year, but at a more conservative level.
Milk prices are considerably lower for all major exporting countries, which should slow the growth in world milk production in 2015. However, relatively low feed prices will help to sustain milk production.
USDA estimated total November milk production to be 3.4% higher than last year. Milk production for the past 5 months was 3.5% higher than the same period a year ago. States having the highest increase in November milk production over a year ago were: Utah, 7.9%; Texas, 7.7%; Colorado, 7.7%; Michigan, 7.0%; and South Dakota, 6.7%. California had 2.2% more milk, and Wisconsin 2.8%. Total milk production for the year is estimated at 205.8 billion lbs., 2.3% more than last year.
Milk cow numbers have been increasing slowly, with November numbers just 4,000 head above October, putting the increase since the end of last year at 78,000 head. November cow numbers were 0.9% higher than last year. Fourteen of the 23 reporting states had more milk cow than last year, four had no change and five had fewer cows. The biggest increase in cow numbers occurred in Texas, with 30,000 head, followed by Michigan, up 19,000; and Idaho, up 12,000. Cow numbers were unchanged for California and down 1,000 head in Wisconsin. For the year, cow numbers are estimated to average 9.255 million head, 0.4% higher than last year.
Improvement in milk per cow has been much bigger factor for increased milk production than more cows. November milk per cow was 2.4% higher than last year. For the year milk per cow is estimated to average 22,261 lbs., 2.0% higher than last year.
One positive is an expected stronger growth in the economy during 2015, Cropp said. Combined with lower dairy product prices, that should result in good growth in domestic sales to help to support milk prices.
View the full December 2014 Dairy Situation & Outlook and other materials on the UW Understanding Dairy Markets website. For more information regarding dairy markets, contact UW-Dairy Markets Specialist Brian Gould or visit UW-Extension Understanding Dairy Markets.
