Milk prices may be in decline, but the U.S. is poised well on the world market to be profitable in the dairy sector.
“We are laying the groundwork for recovery,” said Sarina Sharp, a market analyst who spoke at the Central Plains Dairy Expo March 28 in Sioux Falls. She discussed what was contributing to the dairy downturn and how things could turn around.
The U.S. has one major advantage over competitors in Europe when it comes to dairy farming, and that’s cheap feed. Feed is more readily available in the southern hemisphere, but milk production there has been down, Sharp said, adding that New Zealand dairy farms in particular are dealing with tighter regulations over the type of feed supplements they can give their dairy cows.
Dairy exports have grown over the last 20 years. The U.S. exported 4 percent of its dairy products in 1995. Today, the number is closer to 15 percent. The checkoff-led U.S. Dairy Export Council has hopes of pushing exports to 20 percent of production.
As U.S. dairies compete in a world market, South Dakota dairies are producing more milk. That’s not a good thing for prices, but the state is somewhat isolated from the worst of it.
Between 2009 and 2017, South Dakota’s milk production went up by about 40 percent, according to figures from Sharp.
“We’ll have to see that number come down for the price to turn around,” she said.
While 40 percent is a big increase, South Dakota isn’t hurting as much as other states with similar numbers because milk production started at a lower base in the Mount Rushmore State. Adding a few big dairies made a huge impact, she said.
The number of dairy cows in South Dakota increased since last year, according to the U.S. Department of Agriculture’s report from March 20. The state had 118,000 head of milk cows, 1,000 more than last year. However, milk production for the month of February remained steady year over year, at 201 million pounds.
South Dakota doesn’t suffer from having too much milk in the area, which is a problem in the northeastern U.S. and around the Great Lakes, she said. Adding processing capacity – as is the plan at the Agropur plant in Lake Norden and Valley Queen Cheese in Milbank – will help make for better milk checks for local dairies, she said.
Sharp said dairy producers should see some improvements in prices, but it won’t likely come by July 1. She expects a rebound would happen late this year or early into the next year. It won’t be a meaningful rally, she said until cow numbers decline or production fades.
There are a number of factors that play into the dairy downturn. Sharp discussed several reasons why milk brining in $13 per hundredweight doesn’t feel like it used to.
One major expense for dairy producers is labor. Wages and benefits are going up, and the pool for immigrant labor is shrinking, Sharp said.
“From the parlor to the plant, the dairy industry is going to have to pay more to attract quality employees,” she said.
At the same time, income from cull cattle is dropping out as major retailers focus on higher quality beef, she added.
“The beef industry has plenty of cattle, so they do not want ours,” Sharp said.
Other factors include higher shipping costs, the share of co-op milk that’s sold a discount, lack of payout from the margin protection program, higher feed costs and curbing the use of growth hormones. The export market it plays into it, too.
Canada was a major importer of U.S. cream, but the country has increased its own milk production in recent years.
China is working to modernize its dairy industry, but Sharp doubts the country will be able to meet its demand for milk anytime soon. China is a big importer for whey protein from the U.S.
Another milk byproduct is nonfat dry milk. It’s what’s made from the leftovers from producing the fatty milk products such as cream and butter. Some of the leftovers go into the jug to be sold as skim milk. Most is dried and used in mass produced baked goods, creamy soups and baby formula. It has a longer shelf life once it’s dried, but it’s not good for producers when there’s a lot of dry powder on the shelf. With more milk being processed, the supplies of milk powder are going up.
“We’ve got way more dry milk product that we want and know what to do with,” Sharp said.
The problem doesn’t impact local milk checks as much as in other regions. South Dakota is in a region where prices are based on mostly cheese and whey production, or Class 3. Class 4 prices are based on butter and milk powder.
The checkoff-funded Midwest Dairy Association has been working to increase consumption through programs with kids – future consumers – and with major restaurant chains.
“We’re looking at what we can do to move more milk,” said Allen Merrill, a dairy farmer from Parker, South Dakota, who is chairman of the dairy association.
Earlier this year, Midwest Dairy announced a partnership with Pizza Hut that has the pizza chain putting 25 percent more cheese on their pies. Similar deals with McDonalds and Dominos have increased the amount of dairy products used in their food as well. Those big restaurant chains mean big numbers for dairy growth, Merrill said.
“It takes projects like this to move more product,” he said.