WCMA Notes: Dairy Faces Recovery, not Extinction

Posted By: John Umhoefer WCMA News ,

When the New York Times says your industry faces extinction, it’s time to pump the brakes on the hyperbole and assess the situation.

On April 26, the Times offered a long-form piece entitled “Stung by Trump’s Trade Wars, Wisconsin’s Milk Farmers Face Extinction.”  That same day, block cheddar sold for $1.6850 at the Chicago Mercantile Exchange – higher than the average monthly block price in the past 20 months – and barrel cheddar climbed to $1.63, higher than every monthly average price in the last 17 months. 

Rather than extinction, dairy farmers have faced a prolonged milk price recession that has stressed families and finances and forced many to make the painful decision to sell their cows.

Wisconsin began 2018 with 8,801 dairy farms and saw 691 cease milking cows by year’s end. Since January 2015, nearly 2,000 farms have stopped milking in the state – about 20 percent of the dairy farming community.

But slowly firming cheese prices – a key piece of the milk price paid to farms – are joined by other indicators that point to tightening milk supplies that could lift milk prices in 2019. Dairy cow cull numbers are rising and USDA reported the national dairy herd held 50,000 fewer cows in March than the same month last year.

Nationwide milk production took a historic turn in March, down 0.1 percent compared to the previous year – the first monthly reduction in milk in 62 straight months. (The negative reported in February 2017 wasn’t really a reduction in milk, it was comparing a 28-day February to a 29-day February the year before.)

In April, USDA raised its 2019 forecast for the all-milk price to a range of $17.25 to $17.75/cwt, a rise of 25 cents on the low end of the range and 15 cents on the top side. Wisconsin’s all-milk price in March was $17.30/cwt, up $1.00 from February.

Behind these rising indicators is steadily improving production per cow in Wisconsin, housing technology and feeding regimens that make cows healthier and more comfortable than ever, and a cheese industry that continues to innovate into products that add value to milk.

Nationally, there’s additional positive developments.

In June, dairy farms can sign up for the Dairy Margin Coverage program found in the new U.S. farm bill. This support program is a clear improvement over the previous margin protection program, with higher margins covered – up to $9.50/cwt, lower premium costs, and payments that will be retroactive to January 1, 2019.

Domestic demand for cheese is trending well, with IRI sales data showing natural cheese sales at retail up 2.3% this year through March 24.  But it’s on the export front that dairy processors have heroically held onto cheese sales, which takes us back to the New York Times.

Lower milk prices have “coincided with Mr. Trump’s sweeping tariffs on foreign steel and aluminum, which were intended to help American manufacturers but have set off retaliatory tariffs from Mexico, Canada, Europe and China on American dairy products. Most painful for Wisconsin’s dairy farmers has been a 25 percent tariff that Mexico placed on American cheese, which is made with a significant volume of the state’s milk production,” Times report Alan Rappeport stated.

It's true that dairy is unfairly in the crossfire of an international trade disputes over steel, aluminum and intellectual property.  But U.S. cheese exports to Mexico have held on – up 9 percent in February and up slightly (+0.5 percent) in 2018 overall, although in the second half of last year, cheese into Mexico dipped 1 percent. Cheesemakers have held onto volume by taking a hit on income, paying this 25 percent tariff or sharing that burden with their buyer in Mexico.

Low milk prices have caused real pain for dairy farm families in Wisconsin and around the U.S.  But market indicators point to milk supplies tightening.  In addition, new production facilities in the Upper Midwest will require millions of pounds of milk per day, such as the Glanbia Nutritionals mega-cheese plant in St. Joseph, MI, coming on line in the fall of 2020.

The Wisconsin dairy industry isn’t facing extinction. It has weathered the pain of an extended milk price recession, and will emerge as domestic and export markets grow, government support improves, and better prices allow investment in the future.