Milk prices are not getting a quick lift, and dairy producers are leaning on other revenue streams to stay profitable. And as long as beef on dairy remains strong, analysts say milk prices will stay muted, as producers won’t see high prices on both.
That was the message from market experts at World Dairy Expo this week, in a discussion taped live for U.S. Farm Report. When Mike North, president of the producer division at Ever.Ag, was asked whether the market is finding more balance and whether higher milk prices are coming this year, he said, “not yet.”
“As we look at the size of our dairy herd, 9.71 million head, that’s the largest since 1992, massive increases in cow productivity since then. We have a lot of milk to move, and our only outlet right now has been the export market because domestic demand has been lackluster at best,” North explains.
That export demand comes at a price, according to North.
“The only way to move product is at cheap prices. And if you look at our pricing formula today, low product leads to low milk checks. Not a lot of hope that that’s going to improve anytime quick.”
Dairy Exports at Record Levels
Exports have been the outlet, and Gregg Doud, president and CEO of the National Milk Producers Federation, says U.S. dairy is holding its own globally.
“We are extremely competitive in the world market,” Doud says. “Our record dairy exports were $9.5 billion. We’re going to do probably $10.5 billion in dairy exports this year, which is second only in total ag exports to corn and soybeans now.”
Doud says butter is one area where the industry needs better options.
“We’ve got to find a little better market for that butter than the European Union. We used to be a big butter importer. Now we’re an exporter. If we could find a better place to move some of that butter, we’re really competitive in the world market, and thank goodness, because this has been our outlet and we’ve got to have that.”
He points to trade deals in Southeast Asia, Indonesia in particular, as a long-term opportunity.
“Longer term, this is a perfect opportunity and place for us to go, but I think as we would all agree, these things take time,” Doud says.
New Dairy Reality? Milk as a Residual
What needs to change in the short-term to see higher milk prices? Dan Basse, founder and president of AgResource Company, says the industry has to rethink where the money is made.
“We’re going to have to stop having milk as a residual,” Basse says. “Right now, today, we raise a cow. We get a black calf. That black calf is worth $1,200 to $1,500. That’s where the margin is. We milk the cow off, and we do it again. And maybe there’s a biodigester in between. And so if you think about all of this, milk is not the profit engine of the dairy animal, and that’s our problem.”
North agrees. As much as producers are frustrated with lower milk checks, beef on dairy has been a bigger economic generator. And as long as beef on dairy stays strong, the milk market may not budge.
“9.7 million cows weren’t put together because milk prices were that astounding this year,” he says. “They were put together because the beef price was that astounding.”
For beef on dairy, North does not think beef-on-dairy has peaked, saying it will continue to be a prominent part of dairy producers’ business moving forward.
“We are still going to keep cows moving, a lot of black calves in the system, because we’ve got calves selling for $1,200 to $1,400,” he says. “We are not at the peak of beef production on dairy farms. We’re going to keep plowing ahead,” he adds.
What’s Really Going On With Canada?
The U.S. ban on nearly $1 billion worth of Canadian imports that took effect this week. The trade tensions between the U.S. and Canada seem to be growing. Is that reality? Or is it just noise? Doud, who was the Ag Trade Negotiator during the first Trump administration says it all comes down to one thing: politics.
“Canada is still our second-best market. It’s all politics,” Doud says. “Since we’ve gotten the situation, I think, sorted out here with China, the only retaliation we have in dairy exports anywhere in the world now is with Canada, which is kind of ironic.”
Doud isn’t losing hope about a resolution. He says as Prime Minister Mike Carney continues his tough stance against President Trump, Carney’s approval ratings continue to rise. But now Carney is in a tough position, and stuck, with the question of “where do we go from here?”
“Do I think this gets worked out? Yes, but I think there’s a lot of politics going on in Canada,” says Doud. “They’ve got themselves kind of up in a tree here for a little bit. They’ve got to figure out a way to get back down. We’ll get this deal done. I think we will.”
Doud says he’s confident dairy will be part of a larger agreement.
“The deal on dairy will be as part of the overall deal, and I think we will eventually get there,” he adds.
Watch Expenses, Not Just Milk Price
For dairy producers today, the uncertainty seems to be the only constant. Dairy exports may be at record levels, but domestic demand has taken a hit as consumers are eating out less.
When North was asked what he wants dairy producers in the room to remember over the next 12 months, he says it’s about the bigger picture, not just what’s challenging producers today.
“I think the big picture is what needs to stay in focus here,” North says. “We get kind of bogged down into this conversation about milk price, but as we’ve alluded to here already, the broader picture of revenue, including what we’ve done on the beef side specifically and then any of the ancillary pieces like gas or otherwise play into that whole picture. And if we want to talk about low milk price, we can’t forget that we’re raising cows for beef.”
North says the expense side matters just as much as the revenue, even if producers feel like some of those costs are out of their control.
“We need to be hawkish on our expense. We need to be out in front of these feed costs. We need to be looking at energy. We need to make sure that we manage the expense side so that some of that meager milk check, coupled with these other revenue streams, still bring us back towards black ink. We can’t let cost get away from us as we hope for a better milk price,” says North.
