Dairy markets are currently experiencing a slump, driven primarily by soaring milk production, according to Bryce Windecker, a dairy farmer and analyst with Ever.Ag.
“I got three words: global milk production,” he tells Mid-West Farm Report. “And specifically the EU.”
Windecker says the EU’s milk volume is roughly 1.6 times that of the U.S., meaning increased production there directly translates to lower U.S. prices.
The downward pressure started in September, with butter pricing leading the decline. The U.S. butter market became discounted as European producers, facing high supply, slashed prices. The spread between U.S. and EU butter prices reached as wide as $1.50 a pound. While this cheaper pricing helped U.S. exporters secure some international sales, the difference in product specifications slowed the export process. For example, the world prefers 82 percent unsalted butter while the U.S. typically makes 80 percent salted.
Cheese has also suffered due to international competition. When the Europeans anticipate surplus product, they quickly slash prices to get exports first, Windecker explains. This aggressive pricing strategy, which saw European mozzarella drop to $1.50 while the U.S. remained at $1.80, hindered essential U.S. export opportunities for the fourth quarter of this year and the first quarter of next.
Adding to the price pressure is robust domestic U.S. milk production, which is not slowing down. Herd sizes have grown due to less culling, partially because of high cattle prices. Windecker noted that the revenue from these cattle sales is currently adding an estimated $3 to $4 a hundredweight to producer revenue, acting as a buffer.
He expresses concern about the near-term outlook, stating that lower prices are expected in Q1 and Q2. However, he says that the U.S. has just recently managed to drop its price below the European level for the first time since September, which may allow for a shuffle of export orders into the first quarter.
