Knowledge Exchange

Ag Economy

Dairy

Milk prices were quite low during much of 2018, dropping below $14/cwt for many farms in February 2018. Since then, prices have modestly improved, and are projected to further increase somewhat in 2019. Milk prices usually hit a seasonal low in late winter, when they are typically $1.00 to $1.50/cwt lower than in the fall.

  • U.S. milk production grew 0.8 percent year-over-year in November, due to increased production per cow. Comparing November 2018 vs. November 2017, there were gains in California, Idaho and Texas, and reductions in New York, Pennsylvania, Vermont and Michigan.
  • National cow numbers decreased year-over-year (-38,000 head). New York was down 5,000 head from last year, at 620,000.1
  • Despite ongoing trade issues, U.S. dairy exports have been remarkably strong. Overall, total U.S. dairy exports for the first three quarters of 2018 came to $4.25 billion, four percent above one year ago. Exports were led by very strong buying of powder by Mexico, but partially offset by a large decrease in imports by China. Exports to China were the lowest in two years, in response to new tariffs that have taken effect.
  • With the passage of the 2018 Farm Bill, improved risk management tools will be available to producers. The Dairy Risk Management Program (DRMP), available through the USDA Farm Service Agency, represents the new version of the Margin Protection Program or MPP. Margin coverage is now available up to $9.50/cwt, and premiums for the first five million pounds of production have been substantially reduced. From the Risk Management Agency, LGM is now joined by the Dairy Revenue Protection program (DRP). The DRP provides protection against an unexpected decline in milk revenues. Additionally, producers can now participate in both DRMP and LGM or DRP at the same time.
  • It is believed that the new USMCA trade deal, which still requires ratification by lawmakers in each of the three countries, will benefit U.S. dairy, although the impacts may be fairly modest. Mexico represents the largest buyer of U.S. dairy products, accounting for about 25 percent of exports. After the U.S. placed tariffs on aluminum and steel imports, Mexico retaliated with a percent tariff on many U.S. dairy products, and even with USMCA, those tariffs remain.
  • Regarding Canada, the agreement would remove Canada’s “Class 7” pricing, which made it cheaper for Canadian processors to purchase ultra-filtered milk domestically, and effectively shut down a burgeoning specialty market for the U.S. The agreement will also restrict Canada from exporting certain products at prices below U.S. prices. The U.S. will also be able to export the equivalent of 3.6 percent of Canada’s dairy market, an increase from the existing levels.

1 USDA/NASS