Dairy farmers are beginning the New Year with improved milk prices and more reason to be optimistic.
But a dairy economist says there are a few things the industry as a whole needs to work on to ensure a prosperous future.
The ratification of the U.S-Mexico-Canada Agreement and finalizing a phase one trade deal with China will be good news, but more is needed, Peter Vitaliano, chief economist with National Milk Producers Federation, said on Monday in an NMPF podcast.
USMCA will restore access to Mexico and give U.S. dairy a little bit of access to Canada, he said.
“But I don’t see it moving the volumes of milk that our own farmers are capable of producing when they switch from being flat production to up one, up one-and-a-half percent,” he said.
The same is true for China, which is probably looking to diverse its supply. It remains to be seen how much of that market the U.S. will recover, he said.
He said a prosperous U.S. dairy sector is one where domestic demand continues to increase, international demand continues to expand and the U.S. has the ability to compete with the EU and New Zealand — the other big suppliers.
“Exporting is relatively new for the U.S. industry, so we’re playing catch-up,” he said.
The U.S. Dairy Export Council is doing a good job and working hard, as are some export-focused companies in the U.S., he said.
“But it has not been sort of a central issue for us the way it has been for New Zealand and most recently from the European Union,” he said.
New Zealand exports more than 90% of its milk production, he said.
“They’re good at it, and they know how to do it,” he said.
The EU subsidized exports by private companies for years, giving them a government-financed education program in how to export — and they do it well, he said.
“They have large companies that are very, very experienced and very well focused,” he said.
In addition, it’s been about five years since the EU lifted its quota on milk production. That additional production is going into cheese, a critically important product for the U.S. to increase exports, he said.
“So we’re in a serious race with the European Union to export cheese,” he said.
The U.S. has no price disadvantage when it comes to exporting milk powders, dry ingredients and whey products. But it has to move beyond those products toward increased exports of cheese and maybe eventually even butterfat products, he said.
“That’s where the challenge is,” he said.
The export market is where the U.S. can gain more sales, but it also has to pay attention to increasing sales in the domestic market, he said.
It’s easy to overlook, but it’s a critical market. About 85% of U.S. milk production goes to the domestic market, he said.
While domestic sales of butter and other dairy fat products have been strong, sales have been either declining or somewhat weak in some other traditional products. Fluid milk sales are likely to continue to decline, and yogurt sales are in a bit of decline, he said.
Cheese is the only product that has been growing in sales, and it’s hard to say where maximum capacity is for demand, he said.