Strong dairy product exports impact U.S. milk prices

MADISON, Wis. — U.S. consumers continue to consume more and more cheese each year.

“The most substantial growth is American cheese,” said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin. “Yogurt in most years has been a growth category since the mid-2000s, we’ve had a steady state over the last couple of years and last year it grew again and butter has been well up.”

For 2021, the milk equivalent consumption for domestic dairy products is over 660 pounds per person.

“Despite the oddities, it was still a good year. However, now it’s been different through 2022,” said Stephenson during a Hoard’s Dairyman webinar.

“Inflation has taken its toll as consumers have spent about 22% more dollars to purchase dairy products, but product volume was down 2%,” he said. “I would call that a win to be flat on consumption.”

Dairy cow numbers grew through the first quarter of 2021, peaked during the flush and then began to decline.

“We began to whittle away at capacity to produce milk by taking dairy cows out of the U.S. herd,” Stephenson said.

“In 2022, we increased a little in capacity, plateau at the flush period and growth has been flat ever since,” he said. “The capacity to produce milk is above where it was at the same time last year, but we’re not at all-time highs.”

There was some milk-per-cow growth during the second half of 2022.

“It was not explosive, but with high feed prices I wouldn’t expect it to be,” Stephenson said.

Milk production in 2022 will probably be slightly higher than the year before.

“It is not big growth,” Stephenson said. “The big milk price didn’t stimulate a lot of milk production because we were seeing pretty high costs of production.”

Texas, Georgia and South Dakota had large gains in the percent change of milk production, while Illinois, Indiana, Michigan, Ohio, Pennsylvania and Washington all declined in production.

“The big losers were New Mexico and Florida,” Stephenson said.

“Drought is still an issue in the western half of the country,” he said. “Dry conditions are likely to continue to be a problem unless we get longer, gentler rains through the course of the year and maybe a good snow pack in the Sierras.”

Milk component levels were consistent until about 2010.

“Since 2010, we’ve had a substantial increase in milk components and part of that is genetics and a better understanding of what a dairy cow needs in feeding and management,” Stephenson said. “The U.S. dairy herd averaged more than 4% butterfat in the past year.”

U.S. dairy exports continue to be important for the industry.

“About 18% of our milk production is exported,” Stephenson said. “We export more nonfat dry milk and skim milk powder than any other product and we’ve been selling a lot of cheese to new customers.”

In addition, lactose and whey product sales picked up last year, the university director said, as the swine herds have been growing in China.

However, the United States has some competition for dairy product exports.

“The U.S. is a young player, even though we’ve been exporting products for 20 years,” Stephenson said. “During the last half of the year, the U.S. dollar value has been weakening and that is helping to improve the export outlook for dairy products in the year ahead.”

U.S. nonfat and skim milk powders tend to be competitive in the world market.

“We export more than half of that product and sometimes up to 80% of what we make in this country gets exported,” Stephenson said. “So, we are often the ones that setting the price trend.”

However, currently New Zealand and the European Union have lower prices for powders.

“That tells me there will probably be more downward pressure on powder prices over the next several months,” Stephenson said.

“We are not often very competitive with cheese prices, but we have been for the last two years,” he said. “Going forward as we begin to manufacture more cheese in this country I think our markets will have to clear through exports and we’re going to have to be a regular player in the marketplace.”

Domestic demand for dairy products, Stephenson said, has held up surprisingly well during a time of inflation.

“There are some things suggesting that is going to be difficult to continue since consumers have bought this year’s worth of inflation out of their savings and with credit cards,” he said. “That’s not a good long term strategy and we can’t continue to do that.”

Stephenson is concerned about the probability of recession in 2023 and the consumer strategy under that scenario.

“Recession may mean jobs are harder to come by,” Stephenson said.

“Milk production has been cautious with pretty good milk prices because costs have been high,” he said. “There’s more plant capacity that will be coming on board, so that has implications for milk production.”

“High milk prices have yielded decent margins,” the university director said. “I’m not sure it will be the same case in 2023.”