Past Dairy Market Behavior No Longer Predictor For Future

By Bob Yonkers, Ph.D.

Why aren’t dairy market prices behaving like they "always have in the past"? According to Bob Yonkers, IDFA vice president and chief economist, the dairy market environment has changed significantly just in the past few years, making U.S. dairy markets of today, and likely in the future, very different as a result.

He offered these examples. The U.S. dairy industry has been used to seeing price declines for most manufactured dairy products after the holiday/football seasons end. When the industry depended largely on the domestic market, that was not an unreasonable expectation. But today the industry is exporting more than 15 percent of U.S. farm milk solids. While traditional domestic market factors will continue to play roles, global market indicators are increasingly important and cannot be ignored.

For most of the past year, reports out of China have indicated problems with that country’s domestic farm milk sector due to industry restructuring driven by food safety considerations. In addition, China’s demand for livestock products has grown for several decades, and dairy has been a big part of that growth, both for food and as feed for other livestock. Demand for U.S. dairy exports, both directly into China and also into other regions of the world, was the major factor keeping U.S. domestic dairy market prices from making the expected downturn after the holidays.

Also, Yonkers said it’s important not to limit the search for global market indicators to only those which have played significant roles in the past. Take a look at these market developments. Since the start of its production season last fall, New Zealand milk production is up significantly over last year. In addition, much of Western Europe is experiencing a mild winter and milk production is up there. In Australia, however, heat and drought have that country’s milk production running three percent below last year; much of Eastern Europe and Russia are seeing reduced milk volumes also. In the United States, milk production growth has been slow and dairy demand has remained strong in spite of high wholesale dairy prices.