Low milk prices prompt U.S. dairy to eye supply management

You can tell every five to 10 years that the American milk situation is getting particularly dire — when they start having discussions about supply management.

Dairy farms in the United States are in their fifth year of chronically low milk prices, which declined quickly in late 2014 from about $25 per hundredweight of milk to a range of $15 to $18 per cwt. since.

That’s made dairy farming a tough business for smaller farmers. For example, Wisconsin is losing about 30 dairy farms per month.

The situation has farm organizations, desperate for solutions, pitching supply management.

Canadian dairy farmers, along with most poultry farmers, control supply of milk, chicken and eggs through their commodity boards (backed by legislation) and by the purchase of quota for certain levels of production by farmers. That has meant a more stable pricing system.

However, as more dairy imports have been allowed into Canada, farmers here have had to compete with lower-priced classes of milk, so the Canadian price of milk is more influenced by world price than in the past.

It’s not just the American price that’s low. World prices are also stubbornly low.

I’ve seen this before.

The last major downturn resulted in the Co-operatives Working Together (CWT) initiative, developed by the National Milk Producers Federation, in which most major dairy processor co-operatives in the U.S., which process most of the country’s milk, created a system, paid for by dairy farmers, that helped farmers reduce their milk production.

It has become an organization that facilitates greater exports of milk around the world, which has helped the American industry, but also is contributing to the global glut in milk.

In the past, before the U.S. became such a major export player, the world had to work through gluts in exported milk from New Zealand, Australia and Europe, but not the U.S. That’s changed since the U.S. has increased its exports to 15.8 percent of its production in 2018, according to the U.S. Dairy Export Council.

Managing an overburdened supply situation is not a short-term issue. I’ve been told that a two percent fluctuation in supply and demand in the U.S. will move milk prices from peak to valley. I was told at the World Dairy Expo last fall that the oversupply number is closer to four percent in the U.S., not including the run-up in milk exports of the past five to 10 years in the U.S.

That will take a lot of smaller (or larger) farmers going out of business to push that number to where prices will improve.

I don’t expect we’ll see supply management in the U.S. any time soon. The dairy business there, unlike hogs and poultry, hasn’t seen a large amount of consolidation. There are many thousands of smaller family farms making milk. I was also told that some believe that final consolidation is underway with this downturn. The smaller farms, without multiple locations and integration with processors, won’t survive this time.

It’s like a tale of two cities: larger producers tied to exporting processors will not want supply management. Smaller farmers will. As we know from the Canadian experience, the rest of the world gets grumpy when a country managing supply also tries to export.

The U.S. today exports almost 16 percent of its record production, the largest in the world. That’s a lot of milk production to reduce, and, despite challenges posed by lower milk prices, larger U.S. dairy farms I’ve talked to see their future in filling export markets.

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