There’s a domestic dairy glut that’s so bad it’s led some American farmers to spill milk.
National milk production is increasing faster than the processing capacity. Another challenge facing the industry is total per capita consumption of fluid milk has been steadily falling for some time because of competition from other beverages and because the share of the nation’s total population who are children continues to decline.
“In Michigan and the Northeast, milk is being dumped,” said Gene Paul, legislative coordinator of National Farmers Organization, an Iowa-based organization which markets livestock, grain and milk for its members. “Milk is just being thrown away, because they just don’t have the processing capacity.”
Also contributing to the dairy glut is that average production levels are rising as more-productive cows allow big dairies to experience output growth.
Regardless, it comes as tough trade talk from President Donald Trump and threats to ditch NAFTA, the North American Free Trade Agreement, is causing worries for American milk producers. Mexico is a huge buyer of U.S. dairy products.
“Exports are a big component now of milk sales in this country,” said Peter Fredericks, a dairy specialist with the U.S. Department of Agriculture and administrator in the agency’s Northeast milk marketing area.
The USDA recently raised its milk production forecast for 2017, indicating that “increases in milk per cow more than offset a slower rate of milk cow expansion.”
“There are certain supply-and-demand imbalances going on,” said USDA’s Fredericks. “We’re not seeing rivers of milk being dumped. We’re not seeing farmers foreclosed on — that type of thing.”
Overall, U.S. milk consumption on average is rising between 1 and 2 percent annually but production is going up around 3 percent.
“We’re seeing the growth of these very large dairies that have good cows, they have good technology and they just keep producing more and more milk,” said Paul. “Production just continues to increase, and there’s no brakes on it. And cooperatives are almost encouraging production by paying volume premiums.”
American dairy farmers every year are producing about 3 billion more pounds of milk than the year before, according to a report released this month by CoBank. It found the available processing capacity, particularly in the Northeastern and upper Midwestern states, “has strained the ability of dairy cooperatives to fill the role of market balancers.”
In the Southwestern states, though, there’s less of a dairy glut and less pain being felt by the dairy producers.
“It is a regional problem but a serious problem,’ said Ben Laine, senior dairy economist at CoBank in Denver. “It has put pressure on pricing, especially in some areas like Michigan. It’s depressed prices in other areas whenever you’re forced to dump milk because you’re not able to process it.”
Last year, Michigan ranked No. 5 nationally in terms of milk production, with an estimated 97 percent of the state’s dairy farms family owned, according to the United Dairy Industry of Michigan, a trade group.
Surplus milk produced by the state is exported to meet demand in other states since Michigan produces more than enough milk to supply its own needs.
“We’re ‘nip and tuck’ on processing capacity,” said Ken Nobis, a dairyman in central Michigan and president of Michigan Milk Producers Association. “Our state’s production has grown very rapidly, and it’s grown faster than global consumption has increased.”
In some cases, skim milk is dumped because there is sometimes the capacity to take the butter fat out of it, which Nobis said is between 50 and 60 percent of the value of the milk product. That said, he’s still heard of “cases where everything was dumped.”
Yet it’s not all sour for the dairy industry.
Per capita consumption of dairy products in the U.S. as a whole has been increasing, helped by strong growth for butter and certain yogurt categories.
Whole milk also has been doing better in terms of sales growth than the overall fluid milk category. Also, more cheese products are being sold today and not just for hamburgers or meals but for snacks too.
source : CNBC