A curious dairy cow. An economist warns of the potential for an oversupply of milk and cheese next year.

The tightening global milk supply and environmental restrictions in some countries are providing more opportunity for U.S. dairy exports, but supply-chain issues and high farm costs will continue to present hurdles.

The doors are open for more opportunity, but reliability is going to be key, said Patti Smith, CEO of Dairy America.

The U.S. has to be able to show its ability to get product to countries and be able to compete with Oceana and Europe, she said during the latest “Dairy Download” podcast.

The U.S. dairy industry has been in the position before to become a bigger player in the export market due to problems in global milk supplies, said Mike McCully, owner of the McCully Group, a dairy and food consulting firm.

“I think we’re there again,” he said.

But the supply-chain challenge is a new dynamic this time, he said.

Another new dynamic is environmental restrictions in some competing countries. Europe, New Zealand and other countries are making big pledges to reduce carbon, greenhouse gases and methane, and dairy operators might have to cut back on cows and milk production, he said.

“Practically, that’s a new limit in those countries we haven’t seen before. So you kind of get back to the U.S. really being the main region that has the ability to expand in milk production,” he said.

In the short term, limited supply growth typically supports prices and provides opportunities for the U.S. to become a larger participant in export markets, said Sara Dorland, managing partner of Ceres Dairy Risk Management.

“Longer term, though, I would take a look at those artificial constraints we put on production,” she said.

Domestically, dairy cooperatives are managing milk supply with base plans that have substantial penalties for additional production. Cost of investment to expand is much higher than it was in past periods of tight milk supply, but also the penalty for overproduction is a substantial stick that’s keeping dairy producers from doing what they would have historically, she said.

“I think you’ve got folks looking at things a little bit differently. That’s not to say that I don’t expect dairy producers to add cows if possible. I just don’t know that we see the rapid deployment of cows and barns that we’ve seen over the last few times” of tight global supply, she said.

With milk prices expected to be more than $20 per hundredweight, those production caps will eventually come off, McCully said.

“Farmers, at least in some parts of the country, that want to expand will put more pressure on their processors — whether it’s the cooperatives or private processors — to expand,” he said.

In addition, several plants are going to be constructed or considered. Four cheese plants in Texas and Kansas are planned that will process roughly the equivalent of the milk of 250,000 cows, he said.

“That’s pretty significant, and that’s coming at us over the next three to five years. … I think we will see growth, it’s just going to take a while,” he said.

The tight global supply and good demand will support prices, but feed and other costs are going to be high for quite some time, he said.