‘The Next 5 Percent’ aims to move more U.S. dairy overseas

posted May 14, 2018 7:47 a.m. (CDT)
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by / Lee Mielke

The Agriculture Department lowered its 2018 milk production forecast in the latest World Agricultural Supply and Demand Estimates report and gave us our first look into 2019. The 2018 forecast was reduced from the previous month on lowered milk cow numbers and slow growth in milk per cow.

2018 production and marketings were projected at 218.7 and 217.7 billion pounds, respectively, down 300 million pounds from last month’s estimates. If realized, 2018 production would be up 3.2 billion pounds, or 1.5 percent, from 2017. 2019 production and marketings were estimated at 221.5 and 220.5 billion pounds, respectively. If realized, 2019 production would be up 2.8 billion pounds, or 1.3 percent, from 2018.

FC Stone dairy broker Dave Kurzawski points out in his May 10 Early Morning Update that “we seem to have plenty of milk at the moment, with the Upper Midwest not expected to hit peak flush until later this month or early June (a little later vs. California, which was early this year). Beyond that, however, the questions around U.S. production mount. How will summer weather turn out?

“Just how much of an impact will the widespread removal of rBST be this year? What about the daily articles of smaller producers going out of business? What does that really mean? What about on-farm labor issues? There are plenty of questions and scenarios to keep you up at night, but one thing is for sure,” he concludes. “The trend for dairy products at large seems to be moving higher. And although corrections will occur, 2018 is shaping up to be one of much better demand and much more questionable supply.”

“Long-term survival of a dairy operation will hinge on management’s ability to find ways to push the cost of production below $17.50 per hundredweight while maintaining some level of reinvestment in the operation,” according to Penn State’s latest Dairy Outlook. The Outlook states that “milk futures prices have taken on a decidedly positive movement over the past month. Many in the industry are looking at those fourth-quarter prices with the same longing of a weary desert traveler looking at an oasis on the horizon that has the promise of water.

“But as we know, sometimes the oasis is more of a mirage than reality, and the promise of water to the weary traveler never comes true. One aspect of the markets that makes the fourth-quarter prices somewhat of a mirage is feed prices.”

Dairy farm bottom lines have become increasingly dependent on exports, and U.S. dairy exports have increased 604 percent since 1995, but the U.S. Dairy Export Council says “we are just getting started.”

Mark O’Keefe, vice president of editorial services, says they have set new goals for an industry-wide initiative called “The Next 5 Percent.” The concept includes building U.S. dairy export volume from about 15 percent of U.S. milk solids to 20 percent, according to the USDEC website, and “while the goal is expressed in terms of volume, it’s more than a volume target. That’s because the U.S. dairy industry cannot expand volume as needed without heightening the focus on meeting the evolving demands of overseas customers and consumers with innovative, high-value products. Thus, ‘The Next 5 Percent’ is a dual-track goal to deliver volume expansion concurrently while lifting the value of the products U.S. dairy is selling.”

USDEC says: “In some ways, dairy farmers have become economic victims of their own industriousness, innovation and efficiency. In 1950, the average U.S. cow produced roughly 5,500 pounds of milk per year. With advances in technology, nutrition and animal care, the average cow is now producing about 23,000 pounds per year.

“That’s contributed to a situation in which U.S. dairy farmers produce more milk than their fellow Americans consume. We must find new markets to keep farmers in business. If we aggressively move to increase our export volume now, the growing supply base can serve those markets well into the future.”

USDEC points out that 95 percent of the world’s population, potential customers, live outside the U.S. “Looking beyond our borders is where a significant part of our future business lies and where we can find more markets for our milk, products and ingredients. Since 2003, nearly half of ‘new’ milk produced in this country has gone to exports,” according to USDEC, and projects global dairy trade will increase by 2.3 million metric tons in the next three to five years.”

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