Given that 2014 looked so good, what happened that caused such a dramatic change?
Well a lot has happened. Here are just a few items that have impacted affected milk prices:
•The European Union discontinued quotas. Article after article said that the EU discontinuing quotas would not result in greater production. Well guess what? Production has increased, with the extra production being placed on the world market.
•For a long time, cattle and embryos have been going to India to help their dairy industry get on its feet. Well, this long-term project has succeeded, and India has become pretty much self-sufficient in milk. Check off a long-reliable export market that will not be coming back. Also, look for them to begin exporting dairy in the not-so-distant future.
• The dollar is trading at a very high level, making our milk more expensive on the world market, slowing exports. In fact, the last figures I saw show that U.S. exports of dairy are off by about 2 percent. They have dropped from over 15 percent of production to about 13 percent. While 2 percent may not sound like a lot, it has had a major impact on prices.
• Cheap oil might seem like an odd reason for milk prices to drop. But if you think about it, cheap oil makes it less expensive to move a bulky product like milk around the nation or the world. Cheap oil is adding to the downward pressure on milk prices.
• Finally, a relatively new major player, customer preferences, is greatly increasing in importance. While the average purchaser of dairy products has no idea what an artificial growth hormone is or what a GMO is or what organic or pasteurization is, they do know that “they are bad” and should be avoided. Remember, facts have nothing to do with any of this. They are being “taught” in school and in the press that products like almond milk — which is not milk and contains some very nasty-sounding chemicals — is good.
More examples are available, but I think you get the point.
Where to from here?
Given the headwinds faced by dairy today — I did not even talk about any of the expense issues — stating that it is a bad time to get into the business would be easy. But I have always been a contrarian. When everyone else is leaving, it might be a good time to come in.
There are many factors that make the future of dairy farming bright. Population growth and worldwide income growth are projected to be substantial between now and 2050. More people should result in greater demand, and it is important to note that as incomes rise, so does the intake of highly nutritious foods, like milk. Besides, the average dairy farmer is about 60 years old, meaning they will be out of business shortly. So younger farmers will have a greater opportunity to prosper in the not-so-distant future, if they can just get into the business under the right economic circumstances.
So if you can secure a long-term market contract for your milk, and your budgets are positive at current prices —no pie-in-the-sky assumptions — the odds of success are in your favor, in the long run.
Well a lot has happened. Here are just a few items that have impacted affected milk prices:
•The European Union discontinued quotas. Article after article said that the EU discontinuing quotas would not result in greater production. Well guess what? Production has increased, with the extra production being placed on the world market.
•For a long time, cattle and embryos have been going to India to help their dairy industry get on its feet. Well, this long-term project has succeeded, and India has become pretty much self-sufficient in milk. Check off a long-reliable export market that will not be coming back. Also, look for them to begin exporting dairy in the not-so-distant future.
• The dollar is trading at a very high level, making our milk more expensive on the world market, slowing exports. In fact, the last figures I saw show that U.S. exports of dairy are off by about 2 percent. They have dropped from over 15 percent of production to about 13 percent. While 2 percent may not sound like a lot, it has had a major impact on prices.
• Cheap oil might seem like an odd reason for milk prices to drop. But if you think about it, cheap oil makes it less expensive to move a bulky product like milk around the nation or the world. Cheap oil is adding to the downward pressure on milk prices.
• Finally, a relatively new major player, customer preferences, is greatly increasing in importance. While the average purchaser of dairy products has no idea what an artificial growth hormone is or what a GMO is or what organic or pasteurization is, they do know that “they are bad” and should be avoided. Remember, facts have nothing to do with any of this. They are being “taught” in school and in the press that products like almond milk — which is not milk and contains some very nasty-sounding chemicals — is good.
More examples are available, but I think you get the point.
Where to from here?
Given the headwinds faced by dairy today — I did not even talk about any of the expense issues — stating that it is a bad time to get into the business would be easy. But I have always been a contrarian. When everyone else is leaving, it might be a good time to come in.
There are many factors that make the future of dairy farming bright. Population growth and worldwide income growth are projected to be substantial between now and 2050. More people should result in greater demand, and it is important to note that as incomes rise, so does the intake of highly nutritious foods, like milk. Besides, the average dairy farmer is about 60 years old, meaning they will be out of business shortly. So younger farmers will have a greater opportunity to prosper in the not-so-distant future, if they can just get into the business under the right economic circumstances.
So if you can secure a long-term market contract for your milk, and your budgets are positive at current prices —no pie-in-the-sky assumptions — the odds of success are in your favor, in the long run.
Source: LancasterFarming
