The USDA released the U.S. Dairy Projections to 2035 last week, giving a picture of what they expect to come to all agriculture markets over the next 10 years, including dairy markets. While some markets have a lot to look forward to, it is clear that the world is changing and the United States’s dynamic with the world market may shift in the coming years.
In the last week, market bias has shifted somewhat, thinking the bottom is in or nearby, however it has been rough go for the American dairy farmer lately. Prices seem to be on a slippery slope downward with production numbers steadily climbing. Our farms have done an excellent job of improving efficiency, culling cows that are not the highest producers, taking advantage of high beef prices to shift their focus on marketing calves and overall making ends meet while prices continue to slip.
The problem is, when you are fighting to keep your head above water, it is way easier to keep trying when there is hope of a boat in sight and I’m not sure fundamentally we have that hope clearly spelled out in front of us yet. But, they say, the cure for low prices is low prices, and if last week’s market move is any indication, there are deals to be had in the cash market and bargain buyers are stepping in for more than Black Friday sales. Spot barrel buyers finally bought a load for the first time in four weeks, and while that seems like nothing to be excited about, it is finally a trade after a long drought.
Looking forward to the next 10 years, we start with the GDP to get us an idea of where the USDA thinks the economy is headed. While lower than the last 20 years, it is still expected to see a 0.4 annual percent increase in GDP here in the United States. The world is expected to see a 0.8 percent annual increase, also lower than previously seen since 2006. The highest GDP change is expected in Bangladesh with a 6.3 percent annual increase, although that increase has been steadily estimated at 6.2 percent annual increase since 2006.
For dairy, we see large increases in herd size, increasing 243,000 cows from 2025 to 2035, which is estimated to add 33.3 billion pounds higher milk production due to an increase in not only herd size, but also, 2,866 pounds more milk per cow. All is not lost though; the USDA has perfectly offset their higher production numbers with 33.3 billion pounds more marketings by 2035.
The total supply of milk is due to decrease overall with lower imports as the U.S. uses more of our own products with a 14.3-billion-pound increase in domestic demand and raise export expectations by 16.3 billion pound over the next 10 years.
As expected, prices should climb higher with this type of data. The USDA projects most dairy prices to climb with cheddar cheese 38 cents higher by 2035, Nonfat dry milk 31 cents more, and Dry Whey 13 cents higher. The only outlier in the projected 2035 prices is butter, seeing a 58-cent decline from 2025 to 2035. I can only assume that they anticipate the butterfat percentage in milk produced to continue to increase over the next 10 years at a higher rate than demand will increase.
Consumer demand is the key point in the prices above. With such a big increase in domestic demand, it is clear that the development of new products is an integral part to keep an engaged consumer, but advertising could be the key factor to help save butter. I noticed in the week 1 December Dairy Market News publication from the USDA, that butter is only 10% of the advertisements released and a disappointing 3% of the organic products ads.
When shaping the consumer opinion on products available, it seems like we have a lot of work to do if we do not want to see butter prices fall 20% or the projected 58 cents per pound the USDA is expecting over the next ten years.
Sarah Jungman is a commodity broker with AgMarket.Net and AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Sarah’s office is located in Winterset, Iowa and she may be reached at 515-272-5799 or through the website www.agmarket.net.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in trading commodity futures and options on futures. It may not be suitable for everyone. This material has been prepared by an employee or agent of JSA and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.
