Markets Processing

Difficult Times Ahead for US Dairy Farmers

US - Weak prices will continue into the next quarter for America’s dairy farmers through a period of oversupply.

24 April 2015

2 minute read

North America

This grim forecast has been offered by agricultural analysts at Rabobank, noting that low feed prices are maintaining farm profitability.

They say milk production is refusing to drop in any meaningful way. This despite large swathes of the US suffering from precipitation issues.

In its April review, Rabobank said: “With fewer exports, more imports, weak domestic demand and milk production growth only slowly reducing, the US is headed for an oversupply of milk which will further pressure prices here and abroad.”

Rabobank sees butter and cheese bucking the trend of otherwise ‘lacklustre demand’, but adds that this is being met by imports, which saw a 17 per cent lift in February.

Any improvement at the farm gate in the second half of 2015 will require stronger imports and less supply, says a University of Wisconsin economist.

However, dairy farms are reporting more cows than this time last year, particularly in Michigan which has seen its herd rise by 22,000, said Professor Bob Cropp.

He added that there were 23,000 more cows collectively across South Dakota, Texas, Wisconsin and Iowa but says early forecasts for milk prices may have been a little pessimistic.

He said: “If the growth in milk production continues below two per cent, and it looks likely, milk prices may decline only slightly over the next couple of months and show a little stronger increase for the last half of the year.

“Some improvement in dairy exports is still anticipated by the last half of the year which would add strength to milk prices.”

He suggested cow numbers would not increase at the rate previously expected through the rest of the year.

Futures, on the other hand, were a “little optimistic” with no weakness in any milk prices for the months ahead.

Exports are being limited by the strength of the dollar, said the US Department of Agriculture in its justification of its revision down of fat and skim-solids last month.

“The milk production forecast for 2015 is lowered from last month as slower growth in output per cow more than offsets faster herd expansion,” said the April WASDE report.

"Both fat and skim-solids exports for 2015 are reduced as export demand is hampered by a strong dollar and increased competition from other exporters.

"Fat basis imports are higher on expectations of greater butterfat imports. However, robust domestic demand is expected to support increased product use."