Exporting surplus U.S. dairy products is essential to milk prices, Marin Bozic told a group of 250 Midwest dairy farmers and agriculturists, but he acknowledged that dealing with the consequences of a trade war isn’t easy.
“When you go to a fight, you know that there will be casualties. We are the casualties,” Bozic said. “It’s very gutsy to go into a trade war in an election year.”
Bozic, associate professor of dairy foods marketing economics at University of Minnesota, spoke at the inaugural Dairy Experience Forum July 26 in Bloomington, Minn., about dairy trade, policy issues and demand opportunities. In addition to being associate director of the Midwest Dairy Foods Research Center, Bozic is one of eight faculty members of the National Program for Dairy Markets and Policy.
Bozic told the audience U.S. trade competitors are aggressively fighting for market share.
“We are not. We are renegotiating free-trade agreements with Mexico, Canada and South Korea, and fighting a trade war,” he said. “Our competitors are signing free-trade agreements, and we are not.”
Bozic acknowledged that exports are risky, “but we don’t have a milk supply management program, so there is no alternative,” he said.
The dairy economist said exports are critical to U.S. milk prices. “In 2009, we were exporting 16% of our milk, and by the end of 2009, exports dropped to only 11% — and we all know what happened to milk prices.”
By the numbers
Over the past decade, exports have been absorbing most of the growth in U.S. milk production. From 2007 through 2014, the U.S. exported 79% of domestic dairy increase.
What do dairy exports mean for U.S. farmers over the next 10 years?
According to Bozic, U.S. dairy exports total $5 billion per year, which is about 15% of U.S. milk production.
“Dairy exports represent a proverbial drop in the bucket compared to total ag exports,” he explained. “U.S. ag exports total $161 billion per year. While ag imports are also growing, we export far more ag products than we import.”
So how much do U.S. dairy farmers need to export in the next 10 years?
Bozic figures there are 9.4 million cows in the U.S., which has stayed about the same since 2000. The average cow in the U.S. produces 23,000 pounds of milk. He projects that with cows producing on average 1.2% more milk than the previous year, the U.S. dairy herd will produce 2.16 billion pounds more milk this year than last year. In 2016, each person in the U.S. consumed 550 pounds of fluid milk equivalent.
“There is no upward trend in milk consumption,” he noted. “While we are consuming more cheese, fluid milk consumption is declining. I’m going to assume demand for milk is going to be flat in the U.S. for the next decade.”
But the news isn’t all bad. Bozic said consumption of milkfat is rising in the U.S.
“Milkfat consumption has been growing in the last few years,” he said. “People are drinking whole milk and eating butter and full-fat yogurt. The average person consumes 640 pounds of milkfat per year. We don’t really have to export any butter. We can sell it all domestically.”
Overall, Bozic figures the U.S. will need to export 13.4 billion pounds of milk, or 44% of the domestic dairy increase, each of the next 10 years. “It’s a considerable amount,” he said.
As a result, Bozic believes there will be a lot of pressure on medium-size dairy farms in the next decade.
“The 2018 Farm Bill will offer substantial protection for dairy farmers milking 300 cows or less,” he said.
“But medium-size farms, with between 500 and 2,000 cows, will be under considerable pressure. Large dairies with 2,000 cows or more will be fine due to advantages of size and scale.”