TWIN FALLS, Idaho — While current prices in the international dairy trade rival the lows of the 2009 crash, the fundamentals of strong dairy demand remain, and that means opportunity for the U.S.
Demand is still growing and will continue to grow, and the U.S. is in a good position to fill that need, Rabobank dairy analyst Hayley Moynihan told dairy farmers at a June 16 client dinner.
There’s no doubt current prices paint a somewhat sobering picture in the short term, but the long term remains exciting, she said.
By 2020, China will need the equivalent of another 7 billion pounds of milk, and Southeast Asia will demand an additional 6 billion pounds. Total global demand is expected to increase by 45 billion pounds — equal to the entire production of California, she said.
Demand is expected to increase global traded volumes by 20 million tons (liquid milk equivalent) to 100 million tons, and it’s looking like the U.S. and EU will be the regions to fill that demand, she said.
New Zealand’s rapid growth in milk production is beginning to be challenged, and it’s lost its lower-cost advantage. Hard constraints include the availability of land, labor and water and the increasing cost of environmental regulations. Softer constraints include negative public opinion and resistance to change, she said.
New Zealand’s milk production is still largely pasture based with lower per-cow production than U.S. operations. That annual production is about 10,000 pounds compared with 22,258 pounds in the U.S. in 2014.
There is also huge seasonal fluctuation, with cows going on “vacation” in June and July. It costs more to feed cows in those months than the global market will pay for milk, so New Zealand milking barns aren’t operating at capacity.
Price volatility is another serious factor. Milk prices fell nearly 40 percent — compared with about 13 percent in the U.S. — from the start of last year till the end. It’s the norm in New Zealand, and dairy farmers don’t have the tools, such as futures trading for milk and feed, to manage it, she said.
Constraints on milk production in New Zealand offer opportunity for U.S. dairy exports, but that opportunity also carries risks, she said.
“Dairy is one of the most volatile commodities and will remain so. As you embrace global markets, risk exposure comes hand-in-hand,” she said.
Milk price volatility will increase as the U.S. becomes more integrated in global markets, but being a consistent supplier will pay off in longer term market opportunity, she said.
Anyone can export when prices are high and demand is strong, but long-term success demands meeting customers’ requirements month in and month out through good times and bad times, she said.
It requires commitment to markets and relationships and the ability to withstand the downturns, she said.