Much lower milk prices compared to 2014’s record highs made the past year drastically different than 2014. It looks like 2016 is going to be much closer to 2015 than 2014. Many of the same market conditions that forced milk prices lower remain in place in early 2016. Any significant relief is likely much later in the year.
Many of the reasons for lower milk prices are trade related. Over the last decade or two, as U.S. domestic milk production and world economies grew, the U.S. dairy industry has become more dependent on exports and trade. The U.S. has exported the equivalent of 15 percent or more of our milk production in some months.
Reduced demand for milk products from China and Russia has cut world demand, while increased production from major exporters like New Zealand, the EU, and the U.S. has left a glut of milk on the world market. High product prices in the U.S. relative to world market prices, have boosted our imports and reduced our exports.
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A FEW POSITIVES
For all the bad trade news, there are some significant positive factors for the industry. One of the biggest positives has been the strength of domestic dairy product demand. Good demand for cheese, butter, and yogurt by U.S. consumers has kept milk prices from declining even more. Of course, declining fluid milk consumption continues to be a concern.
Low milk prices restrained production growth during the last half of 2015. The number of dairy cows has been declining and milk production per cow growth has been very small, up less than one percent in 2015. Some relatively sharp declines in milk production in the Western U.S., primarily California, have helped restrain U.S. production.
Class III and IV milk prices are likely to decline even more early in 2016, slipping into the $14 per cwt range, and could even go a little lower before rebounding.
Dairy cow numbers should continue to decline throughout the year. Milk production per cow should be a little stronger in 2016, while feed costs remain low. Milk production should increase slightly, about 0.5 percent for the year.
Reduced milk production in the EU and Oceania and export demand growth won’t likely materialize until the second half of the year. That will leave substantial milk price increases on hold until later in 2016.