U.S. dairy exports are contending with a strong U.S. dollar and continuing retaliatory tariffs from Mexico and China. As I pointed out last week, the U.S. has offset some of the losses via other countries but the bottom line is that exports only accounted for 12.5 percent of U.S. milk solids production in January, according to the U.S. Dairy Export Council, lowest figure in about three years.
While the Administration has walked back its talk of closing the U. S. border with Mexico, the threat was sending shock waves throughout the U.S. dairy industry because that would close access to its largest dairy export market, according to some U.S. dairy organizations.
"The dairy industry is suffering through one of its worst economic periods ever," said Jim Mulhern, president and CEO of the National Milk Producers Federation. "Low milk prices are already creating hardship for farmers, and further supply disruptions would only prolong producer difficulties." More than seven dairy farms close each day in the United States, according to data from the USDA.
"Dairy exporters already are suffering from diminished access to export markets due to high tariffs and lack of progress on U.S. trade agreements," noted Tom Vilsack, president of the U.S. Dairy Export Council. "Closing the border to Mexico would be a gut punch that could set the industry back by a decade or two."
Speaking of closing dairy farms; the March 25 issue of Hoards Dairyman told the sad story. Managing editor Cory Geiger also reported in the April 8 Dairy Radio Now broadcast that 2,731 U.S. dairy farms called in quits in 2018, about 6.8 percent, and the most exits since 2007. Geiger sees a similar percentage closing in 2019 and says the number of dairy farms holding permits has declined by 94,041 since 1992, from 131,509 to 37,468, a 72 percent drop. He also pointed out that while the average herd size has gone from 74 cows in 1992 to 251 in 2018, the total number of milk cows in the milking herd has not changed much.
Evidence of the growing numbers of operations leaving the business is seen in culling numbers. The Daily Dairy Report’s (DDR) Sarina Sharp wrote in the March 29 Milk Producers Council newsletter that “Week after week, dairy cow slaughter volumes reach the highest figures since 1986, the year of the cow kill program. For the week ending March 16, dairy cow slaughter was 71,129, up 6 percent from the same week a year ago. So far this year, dairy cow culling is up 4.6 percent from the already booming pace of 2018. At this rate, the industry is cutting deep into the dairy herd, and laying the groundwork for slower growth in milk production for the foreseeable future,” warned Sharp.
Milk prices are climbing however they have a long ways to profitability.
In politics; lawmakers called on Agriculture Secretary Sonny Perdue to implement the dairy-related provisions of the 2018 Farm Bill as swiftly as possible. A NMPF press release thanked key House and Senate dairy leaders for “adding bipartisan momentum to implementing new, greatly needed dairy programs, a top priority for the U.S. Department of Agriculture.”
“House Agriculture Committee Chairman Collin Peterson (D-MN) and senior committee member Representative Glenn ‘GT’ Thompson (R-PA) led the House effort, and Senate Agriculture Committee Ranking Member Debbie Stabenow (D-MI) and Senator Roy Blunt (R-MO) led in the Senate. The new Dairy Margin Coverage program and other improvements in the new farm bill will provide critical help to dairy farmers this year,” says NMPF.
The International Dairy Foods Association (IDFA) president and CEO Michael Dykes echoed some of that sentiment stating “U.S. dairy processors are very pleased with the dairy provisions in this new farm bill. The Agriculture Improvement Act of 2018 not only represented a historic collaboration between the IDFA and NMPF, but it also provides processors and producers with new and improved risk management tools to better manage the current market instability and uncertainty.”
The Agriculture Department announced the March Federal order Class III milk price at $15.04 per hundredweight, up $1.15 from February, 82 cents above March 2018, and the highest Class III price since October 2018. It equates to $1.29 per gallon, up from $1.19 in February and $1.22 a year ago.
The three-month Class III average is at $14.30, up from $13.87 a year ago but compares to $16.49 in 2017. Incidentally, the March California 4b cheese milk price a year ago was $13.96, with the 4a butter-powder price at $13.01.
Late Friday morning Class III futures portended an April price at $15.88; May, $15.78; and June at $15.89, with a peak at $16.58 in September.
The March Class IV price is $15.71, down 15 cents from February but $2.67 above a year ago and the highest March Class IV since 2014. Its three month average stands at $15.68, up from $13.01 a year ago and $15.37 in 2017.
The April 2 Global Dairy Trade auction (GDT) registered its ninth consecutive session of gain but rose just 0.8 percent on the weighted average of products offered. That compares to the March 19 gain of 1.9 percent and 3.3 percent on March 5. Sellers brought 17.9 million pounds of product to the market, down from 47.9 million on March 19 and the smallest total since April 3, 2018.
The gains were again led by rennet casein, up 7.5 percent, followed by butter, up 5.8 percent, after seeing a 9.3 percent jump on March 19. Buttermilk powder was up 5 percent, anhydrous milkfat was up 3.7 percent, after it dipped 3.1 percent in the last event, and GDT Cheddar was up 3.2 percent, after it gained 3.9 percent. Skim milk powder was up 1.8 percent, following a 2.4 percent decline last time.
Exports remain a vital key to increasing product prices and thus milk prices. Cooperatives Working Together (CWT) members accepted six offers of export assistance from CWT to help capture sales of 575,407 pounds of Cheddar cheese and 39,683 pounds of butter to customers in Asia, Central America, and the Middle East. The product will be delivered through September and raised CWT’s 2019 exports to 25.42 million pounds of American-type cheeses, 2.8 million pounds of butter (82 percent milkfat) and 22.18 million pounds of whole milk powder to 22 countries in six regions.
The CWT also announced that it will start accepting bids for consideration for assistance on pasteurized process cheese, cream cheese, and anhydrous milkfat.
The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.