Like some other livestock markets, milk prices set record highs in 2014. New record highs in 2015 will be tough to repeat.
Class III and IV milk prices hit record highs of over $24 and $23 per cwt, respectively, in mid-2014. When combined with lower feed costs, 2014 was a very good year financially for the dairy farm industry and provided significant financial recovery from the price and cost disasters of 2009 and 2012.
Milk prices were driven higher by booming exports, good domestic demand, and restrained milk production growth in the first half of 2014. Growth in export demand is largely due to economic growth in Asian markets. But, growth in demand for U.S. milk products is also due to somewhat shorter milk supplies from Oceania and the EU. Tighter supplies from those countries lead to higher prices and to the U.S. being the country with milk products to sell. A pullback in Asian demand and increasing worldwide milk and dairy product supplies has sharply cut world product prices. Oceania skim milk powder prices have fallen from over $2.20 per pound early in 2014 to just under $1.20 per pound in November. Whole milk powder has seen an even greater slide, from almost $2.40 to $1.20 per pound.
When world prices decline, U.S. prices follow suit. So far, however, U.S. prices have not fallen as far as world prices have, and that may be due to good domestic demand.
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The surge in milk prices and dairy profits has begun to increase milk production, but at a slower rate than many expected. The number of dairy cows has increased to 9.28 million, the most since early 2009. And milk production per cow has increased also, to record large amounts. Monthly milk production in late 2014 saw increases of 4 percent, year over year. It appears that both cow numbers and production per cow will continue to increase in 2015. U.S. dairy product exports began to drop sharply in the second half of 2014. The combination of reduced sales and increased supplies has reduced milk prices and that is expected to continue in 2015.
It is likely that milk prices will see double digit declines of more than 20 percent in 2015 compared to 2014. The magnitude of the decline will depend on the continued rapid growth in U.S. milk production, the rate of growth in production from other countries, and the strength of dairy product demand worldwide. Regardless, it will be difficult to duplicate 2014’s impressive run of profits.