The U.S. continues to defy gravity as current domestic dairy prices remain elevated from the farm gate to the dinner plate compared to the rest of the world, according to Rabobank. U.S. milk prices paid to farmers are 60% higher than in New Zealand and 20% higher than in the Netherlands.
The U.S. milk price for May was $16.70 per hundredweight, according to the USDA. Wisconsin farmers received an average of $17.70 per hundredweight for their milk in May, unchanged from April.
U.S. milk production has continued to grow thanks to average prices being above breakeven for many dairy farmers. However, California has brought down the total figure because dairy farmers in California face higher costs of production and lower milk prices due to the drought and a greater share of milk exported.
The U.S. milk supply has increased 1.6% from April 2014 to April 2015. As a result, inventories are growing. The USDA's April cold storage report showed the butter inventory was up 24% and cheese inventory had risen 4.2% in the past 12 months.
According to Rabobank, U.S. prices hold a 76-cent premium per pound for butter and a 38-cent premium per pound for cheese compared to prices in the rest of the world. Butter and cheese prices will experience downward pressure as farmers continue to respond to profitable farm gate prices and international sellers make the most of the premiums for commodities in our domestic market in the months ahead.
Cheese prices have been rising this past month, rising 16 cents per pound in a fairly steady climb.
"Expectations are that cheese demand will be good enough to maintain strong prices through autumn," says Jim Dunn, professor of agricultural economics at Penn state University. "In contrast the butter price, although just as volatile, spiked in mid-month and ended up to 18 cents per pound more than last month at this time. One positive for butter is the strong cheese market."
The European Union is attempting to solve the continuing challenges of the Greek economy, which has undermined the single currency strategy with Greece's inability to handle its pension challenges and deficits.
"The weak Chinese economy is especially hurting Australia and New Zealand, since they are particularly tied to Asian markets, not only for dairy, but also for many other items," says Dunn.
El Niño, which usually adversely affects milk production in Australia and New Zealand, is not having much of an impact, which means plenty of milk for dairy exports, despite the lack of markets.
The strong U.S. dollar continues to challenge U.S. exporters of dairy products. Dairy exports have fallen significantly since the highs of 2014, as the strong dollar, the weaker Chinese economy, and the Russian embargo are all are hurting U.S. exports. Although the Russian embargo could have hurt the European Union's dairy exports, the weak euro has opened markets ordinarily served by the United States, including even some to Mexico. With EU milk production increasing, along with Australia and New Zealand, U.S. exports could continue to suffer, Dunn cautions.
Penn State's measure of income over feed costs rose by 8% in May, as milk prices rose and feed prices stayed the same. May's feed cost is 3 cents per cow per day more than in April. May's value for income over feed costs of $6.79 per cow per day is well below the 2014 value, when the milk price was very high and feed prices were moderate. The large drop in the milk price is the driver of the lower income over feed costs, although feed costs are slightly lower than last year at this time. Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day.
March cow numbers rose only by .75%.
"This is despite falling milk production in the West with the drought in California and the more expensive feed in the West," says Dunn. "The Midwest in particular is expanding production, which is seen by some shipments overwhelming the processors' ability to accept it."
Idaho is now the third largest dairy state behind No. 1 California and No. 2 Wisconsin, having passed New York once again. Pennsylvania is fifth with Texas a close sixth.