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Pulse Price Report: Foreign Markets May Help Dairy Prices Mend

With all of this talk about dairy farm expansion, Concentrated Animal Feeding Operations (CAFOs), and the proposed biodigester in Kewaunee County, it got me wondering what’s driving this push for big dairy? All I’ve heard over the past year has been how low milk prices are, so it can’t be short-term profitability. But it turns out, dairy prices may be on an upswing and it’s no thanks to dairy producers in the United States.

Of the seven largest dairy producing markets in the world, six of them are contracting production. The only one that is not is the United States. Wisconsin is leading the charge in increasing milk and cheese production, with a nearly 27 percent increase through historic highs and lows since 2005.

Meanwhile, dairy prices have been at five-year lows for most of the year, with a slow climb starting in November that has dairy producers optimistic.

But prices are still well below the threshold to encourage new players into the market. Dairy producers are also tuned in to consumer tastes, which have shifted away from dairy toward non-dairy products. Although the market share for non-dairy alternatives is negligible, it is a trend that may continue.

So when milk prices are low and more consumers are turning their backs on dairy milk, why would a dairy farmer look to bring on more cows? The USDA can only buy $20 million worth of cheese to hold up the market so many times, as it did in October of this year.

The United States, and particularly Wisconsin, hope to capitalize on the market share that is being relinquished by decreased production abroad.

Earlier this year, 58,000 farmers in 27 European Union nations agreed to a voluntary reduction scheme to hold up prices.

Australia, New Zealand, Argentina, Uruguay and Brazil have all been contracting their own milk production.

Speaking domestically, drought conditions in California have some believing that the state will struggle to increase production, leaving a bigger hole for Wisconsin dairy producers to fill with their expanding herds, although conditions in California have not yet affected production.

“If you look at the supply side of the industry, we’re very slow to respond to negative returns,” Scott Brown, University of Missouri agricultural economist, told Agweb.com. “So, that means we have to wait for demand to catch up and go through a longer period of negative times for producers, yet, when we have good times in the dairy industry, we grow right away. We grow pretty rapidly and we grow out of those very good times.”

It’s hard to say whether or not Wisconsin dairy producers’ bet on future dairy price increases will pay off, but as Rep. Joel Kitchens said in his Dec. 5 listening session, “Large farms are not going away. They’re just not.”

Crop prices (Dec. 6)

Rio Creek Feed Mill – Algoma

Commodity Price (per bushel) Basis
Corn $2.89 -0.70
New-Crop Corn $3.29 -0.60
Soybeans $9.53 -0.91
Soybeans $9.44 -0.81
Wheat (SRW) $3.08 -1.00
New-Crop Wheat (SRW) $3.53 -0.80

Fox River Valley Ethanol – Green Bay

Corn $3.05/bushel -0.54
New-Crop Corn $3.39/bushel -0.50

Basis: The difference between the local cash price for a commodity and the Chicago cash price (where the Board of Trade sets national futures price).

Gas Price Averages

United States: $2.19

United States one year ago: $2.04

Wisconsin: $2.09

Wisconsin one year ago: $1.93

Northern Door: $2.14

Sturgeon Bay: $2.14

Other Commodities

Gold: $1,174.10/troy ounce

Silver: $16.93/troy ounce

Oil: $50.57/barrel

Sources: aaa.com, agweb.com, gasbuddy.com, money.cnn.com, Agriland.ie, Agweb.com

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