Looking back at 2013, many producers would say it was a pretty good year; milk prices went up, feed prices dropped and the U.S. exported a record amount of dairy. Although there is always uncertainly in the upcoming year, many dairy economists are positioning 2014 to be an even more profitable.
Changes in the dairy market internationally and domestically along with lower feed costs will have the most impact on the milk pricing for 2014. While Mark Stephenson, director of the Center for Dairy Profitability, is expecting milk prices to decline slightly, he says the more drastic drop in feed costs will result in larger margins for producers.
As producers are aware, both corn and soybean prices have dropped since the start of 2013 as have hay prices, but only to some extent. Hay prices have not dropped the same amount as corn and soy due to other reasons in the marketplace.
“The cost of the ration has dropped a lot. We are back to prices that we saw in 2008. These last few years of higher feed costs are not going to be the case this next year and that makes a big difference,” Stephenson says.
“While I’m expecting milk prices to decline somewhat this next year, there is going to be a lot more milk produced not only in this country but by our competitors overseas, that is going to put downward pressure on milk prices,” he adds. “But I also think that our input prices for feed have fallen further than those milk prices will. Margins for producers will be very good this year.”
Milk production has changed on a state level, shifting from the West coast to the Northeast corner of the U.S., due to changes in weather. Internationally, some counties are specializing in dairying while others are transitioning out, contributing to increased trade and U.S. exports overseas.
“We are now selling about 15 percent of our dairy products as exports. That is a big number,” said Stephenson. “It’s a little bit about a double edged sword. It’s great that we have these sales, they are clearly a growth category for us but it also comes with the caveat that if we have a worldwide recession, milk gets pushed back here and our milk prices will collapse because of it.”
He notes that much of the worldwide demand for dairy mainly comes from a jump in wealth versus population demands.
“They [other countries] can afford to buy dairy products now and that wasn’t always true,” said Stephenson. “I think that this is true for many of the countries of the world. It’s an excellent source of high quality animal food stuffs and proteins, and we happen to be in a position to supply a lot of that to the world.”
Domestically, a category shift within the dairy product market has been transitioning fluid milk sales to component-based product sales in the areas of cheese and yogurt.
For many years breakfast cereal was thought to be the place where fluid milk sales would thrive, but as consumers are trading in sit-down breakfasts for quicker options, the growth areas of dairy have changed.
Stephenson believes that yogurt will be a big advancement category for dairy while cheese sales are leveling off.
“This is going to be a good year for producers. Try to do the things that you can do in a year where you have some extra money to do it. If you are getting toward the latter half of the year and what might look like a bigger tax obligation think about pre-buying inputs,” Stephenson emphasizes. “If you have an opportunity to pay down some debt on loans, go ahead and do that. That puts you in better shape for the years when you do have a down-turn in prices.”
Source: Agriview
