Global milk production soured by trade wars and plummeting prices, report says
- 2018 is on track for the worst year-on-year growth in domestic milk production since 2013, according to a new report from Rabobank. Prospects don’t look much better for 2019 as the industry continues to grapple with overproduction, tariffs and volatile market dynamics, Dairy Reporter wrote.
- Despite increases in consumer spending, retail dairy sales have mostly declined. The hardship is in part due to a dramatic oversupply that has forced prices down and left dairy manufacturers reeling.
- Nevertheless, U.S. milk solids exports were up 18% across the board. Trade disputes have provoked shifts in the market. As exports to China saw a 22% decline, U.S. milk flooded markets in the Philippines and Indonesia, where exports spiked 47% in Q3.
It’s been a bad few years for dairy in America. Prices have been falling consistently since 2014 and dairy farms are closing left and right. The number of dairy cows decreased by 30,000 as producers struggle to keep up with a market that continues to demand more for less. Dairy cow slaughter rates increased 11% over 2017 as of October. All the while, breeders have increased the per cow milk yield, contributing both to increases in production and reduced herd size.
Faced with more fluid milk than they can sell fresh, dairy farmers have turned to cheesemakers. Once transformed into cheddar, Swiss or marbled jack, fluid milk has a much longer shelf life. It’s a better alternative than dumping the excess milk. But now U.S. cheese producers are sitting on billions of pounds of surplus product, driving down prices across the board.
But underlying the dairy crisis is a growing U.S. economy. While food service and consumer sales are up 7% and 6% respectively, retail dairy sales are tanking. Although consumers are spending on food and drinks, they aren't spending on milk. Processed cheese, yogurt and fluid milk sales are all down. That could be partially attributed to the growing popularity of alternative dairy products, like nut and oat milks. Additionally, milk prices have dropped 40% from 2014 and more than 600 dairy farms closed last year in Wisconsin. Only natural cheese sales grew during this period, according to the report.
But it’s not just a domestic problem. U.S. exports were actually up last year, despite the uncertainty of both Brexit and the U.S.-China trade war. While exports in China dropped 22%, U.S. producers sent more dairy products elsewhere. Cheese sales to Mexico declined year over year, but milk exports grew overall. However, despite some gains, some predict that the diminished market for U.S. milk products in China could present a $12.2 billion loss by 2023.
Given the continued pressure from Chinese and Mexican tariffs, prices for products like dry whey and cheese are likely to remain low. The dairy industry will start 2019 with lower prices than ever. The report predicts a 0.75% growth in the first six months of the year — coupled with yet more growth in per cow yield and continued reduction in average herd size.
With retail sales down considerably and unlikely to pick back up, exports will remain critical for the U.S. dairy industry in 2019. Production is down in the European Union and Australia too, where weather conditions have wrought havoc on feed. Much of northwestern Europe is struggling with a drought likely to slow production rates into 2019. That could present an opportunity for American producers to send more milk products abroad, at least in the short term.
But the biggest unknown remains trade with China and regionally in the U.S. If the international market continues to be this volatile and milk prices drop even lower, the industry will continue to struggle this year.