LOUISVILLE, Ohio – Ohio State dairy economist Cam Thraen’s projected outlook for dairy says it’s only a matter of time until producers will see real changes in the bottom line.
Until then, dairymen face several months of uncertainty and low prices.
Slowed decline. Explaining the recent dairy price nosedive, Thraen pointed to a stabilization of cow numbers across the nation.
In 1990, there were more than 10 million cows in production across the country, but the dairy industry was also experiencing a long-term decline in the total dairy herd. That decline slowed after the 1996 farm bill to today’s nearly 9.2 million cows in production.
“The average milk per cow [output] grows at 2 percent a year. With more cows producing more, we definitely aren’t winning at that game,” he said.
Slumping demand. Margins are tight with grain and feed prices up and milk prices down drastically.
“It really puts significant pressure on dairies from a profitability sense.”
According to the economist, the real culprit for pricing is slumping demand.
“The real message here is the numbers keep creeping up. We’re producing more than the commercial market is willing to take,” he said.
Data presented during a Nov. 18 dairy outlook meeting in Louisville, Ohio, show increased market carryout each year since 1998. The USDA Agricultural Marketing Service figures show a 7 billion pound surplus brought into 2002.
The carryout surplus is projected to last until the third quarter of 2003.
“The industry geared up for consumption that disappeared in 2001-2002. There was nothing there. Numbers are going down every year,” he said.
The only safety valve is to produce less, voluntarily or involuntarily, or to get consumers to purchase more dairy products.
Economic factor. Since 1975, cheese consumption has increased from 14 pounds per capita to 30 pounds per capita in 2001, and fluid milk consumption has fallen from 300 pounds to 207 pounds per capita in 2002.
Commercial sales of butter, cheeses, nonfat dry milk and fluid milk haven’t held up and are blamed on the economic recession.
“It’s not a pricing issue, it’s an income issue. Sales at the restaurant level – the cheese on pizzas at Pizza Hut and all the cheeseburgers – have evaporated because people don’t eat out as much,” he said.
Strong growth in demand will be needed to keep prices up and pull milk through the market.
Good news ahead. But there’s good news for dairy producers who are struggling to make ends meet right now.
Milk production growth is cyclical in nature, typically four to seven quarters in length, and production is expected to turn down again.
“This is a good thing. We’ll get the supply back into balance with demand and prices will get better,” Thraen said.
(You can contact Andrea Myers at 1-800-837-3419, ext. 22, or by e-mail at amyers@farmanddairy.com.)
