U.S. milk market expected to improve this year
HERSHEY, Pa. — The U.S. milk market should begin to improve later this year provided a probable recession is small, banks remain stable and China’s demand for dairy rises as it continues to emerge from its restrictive COVID-19 policies, a dairy analyst said last month.
“I’m generally optimistic. We seem to be getting closer to a bottom in this market,” said Sara Dorland, managing partner at Ceres Dairy Risk Management in Seattle. “You gotta get through the spring. We probably have too much milk right now. It’s probably not going to be all too pleasant from a pricing perspective.”
Dorland briefed regional farmers on global economic pressures in the dairy market at the Maryland-Virginia Milk Producers Cooperative Association’s annual meeting on March 30. The Idaho-based consultant suggested that dairy producers toss out trends over the last three years as an aberration caused by the pandemic and look to pre-pandemic trends as a more useful indicator.
Last year, China retired its “zero-COVID” policy of imposing lockdowns on regions with viral outbreaks — an approach that disrupted a significant expansion of its dairy herd by millions of cows as it seeks to become less reliant on imports, Dorland said.
“China wasn’t buying last year, and China is consuming more this year,” she said.
China’s economic recovery is also expected to spark an 80-percent increase in Chinese travel over the previous year — a boon for the food service industry, which is the largest consumer of U.S. dairy products, she said. And while several U.S. industries, such as Silicon Valley and retail, have been laying off workers, industries that employ far more people, such as the food service and manufacturing industries, expect to add jobs, she said. More people in the Western world have also returned to offices, which means they’re eating out more often.
“It’s enough that it’s an impact on how much food is being consumed, and that’s a big driver of dairy demand,” Dorland said. “I look at that and say, ‘Holy smokes, that sounds like good dairy demand to me.’”
Growth within the food service industry has also helped the dairy industry manage a pullback from some consumers who are buying less butter due to price inflation. The Federal Reserve’s efforts to limit that inflation by increasing interest rates could eventually lead to a recession, though not one as significant as those caused by the pandemic and the housing market collapse in 2008, she said.
“The people with most of the jobs, they feel pretty secure where they’re at,” she said.
Regulation is curbing dairy production in Europe and New Zealand — an opportunity for the United States, whose dairy industry has always survived on growth, she said.
“Exports are truly important to us,” Dorland said. “We are likely to become the largest exporter of dairy products globally. … The growth and demand for dairy will likely come from the U.S.”
As the size of the average U.S. dairy grows, a shrinking number of farms will satisfy that demand, she said. Less than 2,500 farms produce 70-75 percent of U.S. milk production, which isn’t ideal for a safer, more resilient industry, she said
“We are tilting the scales toward imbalance,” she said.
As Congress considers another Farm Bill, more scrutiny should be applied to aspects of the federal milk marketing orders system such as the price of Class I milk and the make allowance. The American Farm Bureau Federation has suggested that the federal order system adopt more uniform milk pricing rules across the country and to create more flexible make allowances so that farmers and processors can share risk and processing costs.
“We haven’t maintained the federal order system, and it’s starting to have some trouble,” she said. “It’s a system that’s lasted a long time, but it’s not a system that can go with neglect.”