In 2013, milk prices were at their third-highest values on record. In 2014, the prices set records. Those trends are not expected to continue, according to two recent reports from the USDA and HighGround Dairy.
Milk production is expected to increase to 211.5 billion pounds in 2015, but prices will continue to fall, according to the USDA Dairy Outlook (PDF, 65 KB) published Feb. 20. HighGround Trading’s Jan. 16 U.S. Dairy Commodity Price Forecast Snapshot (PDF, 907 KB) analysis of Chicago Mercantile Exchange (CME) futures predicts that things will continue to get worse for producers in the short term.
National milk production is expected to continue to increase. The lessening of feed prices across the U.S. allowed farmers to add 99,300 cows in 2014, according to the USDA, and the growth of average milk per cow at 2 percent on a per-day basis led to a net 2.4 percent increase in milk production. The USDA report expects per-cow production to increase faster in 2015 than in previous years, about 2 percent. Production is up, but demand is down.
The record milk prices and profits seen in 2014 will not be repeated in 2015, says the USDA report. Milk margins are expected to decline. However, the USDA report says the USDA Dairy Margin Protection Program Decision Tool predicts several months of margins around $8 per hundredweight (cwt), with increasing margins in the second half of 2015.
The U.S. milk market is increasingly integrating on the international scale, leading to competition with international exporters. In particular, the USDA says increased production led to increased stock of nonfat dry milk and cheese, and it therefore led to falling prices in the last quarter of 2014.
Large supplies of most dairy products are expected to drive prices lower in the first quarter of 2015. HighGround’s report notes that prices for export milk on the CME are lowering in an attempt to increase exports from the U.S., but will likely be frustrated by market conditions.
International demand will remain weak in the first half because of Russian bans on trade with the U.S. The USDA expects these bans to be lifted in the second half of 2015. HighGround expects that the euro’s current weakness against the dollar will not be offset sufficiently by any eurozone fiscal stimulus program to make U.S. milk prices attractive.
The USDA predicts that domestic demand for dairy will increase to offset decreased international demand, but prices will still fall in early 2015. The high prices seen in 2014 had fallen to well below the yearly average by December. Weaker dairy markets will bring the 2015 all-milk price down to between $17.40 and $18.10 per cwt, much less than 2014’s record $23.98. Class milk prices are also expected to decline by $5 to $7 per class. The USDA report predicts that in 2015, cheese prices will average $1.595 to $1.665 per pound and butter will average $1.655 to $1.755 per pound. PD