Extension: Dairy prices slip because of demand changes
Changes in demand from countries such as China are causing milk prices to dip in Minnesota and across the United States.
“In southern Minnesota, as well as the rest of Minnesota and the upper Midwest, producers are facing lower prices,” said University of Minnesota Extension Educator Betty Berning. “The cost of inputs for producers has not decreased, so this makes margins (profits) smaller.”
She added that feed prices, corn and soybeans, have declined, so this will help dairymen manage margins.
“While milk prices are lower this year, they are coming off record highs,” she said.
Berning is the regional extension educator on the agricultural business management team. Her focus is on livestock, particularly dairy, in Minnesota.
Berning said that what is causing the price fluctuation is simple: supply and demand.
“If there is more milk available than what is needed (or demanded), prices fall,” she said. “If there is more milk than what is supplied, prices increase.”
So far, milk prices in 2015 are significantly lower than in 2014.
“The All-Milk Price in Minnesota is lower than producers have seen for the past few years,” Berning said.
While the prices are changing, Berning said that milk supply across the globe has not declined enough in response to changes in demand.
“World milk supply is largely unchanged from 2014,” she said.
One way dairy farmers can deal with the issue is to understand their cost and make a plan to break even, Berning said.
“It may be too late to do anything about the quarter-one or quarter-two 2015 prices, but farmers can work on creating a risk-management plan for quarter-four 2015 and 2016.”
In addition, many Minnesota farmers are enrolled in the Farm Bill’s Dairy Margin Protection Program (MPP).
“This will protect farmers at certain price points,” Berning stated. “It is contingent on the coverage and margin level they selected, as well as the prices that are used to calculate margins (All-Milk Price and milk feed costs calculated by USDA).”
She added that producers that selected a higher margin level are the ones that would most likely receive a payment from this program.
“As it sits today, MPP won’t make a payment in 2015; however, that’s subject to change,” she said. “Futures prices for milk are higher in the back half of 2015, but they could decline and that could trigger a payment. We’ll know more as time progresses.”
As for how dairy farmers are dealing with the situation, Berning’s instinct tells her they are managing rations and expenses. This could mean not buying a new piece of equipment, watching labor costs or making decisions about crop inputs.