St-Pierre: Off-kilter dairy economics have even the experts stumped

SEBRING, Ohio – Forget the trends, the ag economists and their forecasts, and how things used to be.
It’s not the world we grew in, says Ohio State dairy economist Normand St-Pierre, and almost no part of today’s dairy economic upswing makes sense – not even to the experts.
“Last January, the leading experts issued their forecasts. I’ve yet to find one who said we’d have $13+ milk,” he said during a dairy forum Oct. 29.
September data shows producers in Federal Order 33 are getting $21.94 per hundredweight for their production.
“And to think $14 milk used to be, historically, a moderately high price,” St-Pierre said.
Dip and dive. St-Pierre reflected on the changes seen most recently in the dairy industry, including dips and dives that make even the experts raise their eyebrows.
Ups and downs in the market used to be seasonal, and flowed from high to low and back within the calendar year. These days, St-Pierre said, prices climb for months on end, then crash. The highs are higher than ever before, and the lows are painfully low.
“In the 1980s, milk varied maybe 50 cents” over the year. Not so anymore, St-Pierre said, noting those changes now hang around $3 per hundredweight.
An oddity. Year 2007 was an oddity in dairy economics. In an average year, demand for dairy products climbs 1.5 percent, he said. This year, demand is up 2 percent, including a whopping 3 percent climb in the last three months alone.
Supply is up, which should drive price down, St-Pierre said. Instead, milk is at record prices, thanks to worldwide demand affected by shortages in Australia and political issues in New Zealand and Europe, according to St-Pierre.
“World demand is up, and the only place to find a substantial amount [of milk] is the USA.”
“You just can’t forecast what happened this year.”
Survive. The dairy industry is at a point now, St-Pierre said, that producers aren’t selling cows when prices take a nosedive. They reduce overall growth of the farm, but don’t slow the herd, trying to make do until the next high hits, he said.
“What you do during the high times determines your survivability and sustainability. When prices are high, you’ve got to prepare for the next bottom.”
No dairy economist can say when the next low point will come, St-Pierre admitted to the 30 dairy producers and allied industry professionals who attended the Ohio Dairy Producers Association forum.
But signals point to a possible bottom-out in the next six to eight months, he said.
“Prepare for a rough time on the horizon,” he warned. “You should have a nice Christmas, but after that …”
“Prepare for prices coming down now. If they don’t, you’ll be in good shape. And if they do, you’ll be in good shape, too.”
(Reporter Andrea Zippay welcomes feedback by phone at 800-837-3419 or by e-mail at azippay@farmanddairy.com.)