With the constant ebb and flow of the rollercoaster of milk prices, dairy producers face a variety of challenges that require careful attention. However, along with the challenges come opportunities that can be leveraged for greater success. Kathleen Wolfley with Ever.Ag spoke on a recent ‘Protect Your Profits’ webinar hosted by the Center for Dairy Excellence where she outlined many valuable insights, including five things dairy producers need to not only know, but also continue to keep a watchful eye on.
Exports Are Setting New Records
The fluctuating prices of milk have been a significant concern for dairy producers. These price changes can have a profound impact on profitability, and staying ahead of these shifts is crucial for maintaining financial stability. Wolfley emphasized the importance of monitoring market trends and being prepared to adjust strategies accordingly.
Additionally, there have been record U.S. dairy exports for three consecutive months. Wolfley says that the dairy products are heading to Mexico, South Korea or Japan.
“We’ve really been able to take some market share and move some products,” she says.
Low dairy prices certainly helped spur the big exports in the first half of the year. The big-ticket question is will high prices stifle second half shipments? Wolfley notes that as the market continues to navigate through 2024 and beyond, staying informed and agile will be key for produce looking to maintain their competitiveness and overall profitability.
Domestic Demand Looking Better
Wolfley shares that data suggests stronger promotional activity with dairy sales has helped get the ball rolling.
“Consumers love a good sale,” she says, noting that restaurant traffic has picked up and that good value promotions are working. “The big question now is can retailers and restaurants keep the promotions going? Or rather, will consumers keep coming back for more once the promotions dry up?”
The Milk is There for Now
U.S. milk production has been on the decline for nearly a year with May output down 0.9% year-over-year. But even with the downtick, Wolfley shares that milk availability hasn’t been pinched.
“Thanks in part to lighter demand in 2023 and early 2024,” she says, noting that the margin picture at the dairy is improving (at least on paper). “This suggests that we could see supply rebound some – particularly against weak year-over-year comparisons – but limited heifer availability, HPAI and summer heat could limit the bounce-back.”
According to Wolfley, ultimately, the market is now wondering if we’ll have enough milk to fill the new cheese plants that are coming online in different spots across the country and, more acutely, meet demand if it stays robust through year-end.
Can Butter Stay Sky High?
Over the past decade, the dairy industry has seen a significant shift towards higher butterfat values in milk. This change has been largely driven by incentives for producers to breed and feed for higher fat tests. With these incentives, producers across the U.S. are achieving notably higher butterfat percentages in their milk. Wolfley shares that the incentive structures have successfully translated into higher butterfat tests nationwide. Currently, the average butterfat test in the U.S. is running around a 4.3%.
“That’s astounding to see that kind of rapid increase in fat tests,” she says. “We’re breeding for a higher fat, but I can tell you that I see a lot more crossbreds and a lot more Jersey herds around. Farmers have definitely responded to the incentives.”
Wolfley notes that even with high butter stocks, prices are holding.
Macro Market: No Clear Picture
The state of the American consumer is tough to pinpoint. Wolfley shares that depending on where you look, the picture looks a lot different.
“Upper income folks are benefiting from a healthy (and rising) stock market,” she says. “Air travel is booming this summer as people spend on vacations.”
However, this scenario isn’t true for everyone. The New York Federal Reserve data showed credit card balances were up 13% year-over-year in March.
“And delinquencies are picking up steam with credit cards,” she says. “To my eye, that suggests that some of the recovery in demand is being supported by credit. So. I wonder, when will the credit catch up with people?”
