Dairy Industry Grapples with Falling Prices, Tariff Uncertainty, and Changing Market Dynamics
Source: DairyNews.today
The U.S. dairy industry faces a confluence of challenges and opportunities, including falling milk prices, shifting production trends, and potential trade disruptions under President-elect Donald Trump’s administration. Industry stakeholders are closely monitoring critical factors such as international tariffs, evolving export markets, and expanding cheese production capacity.
Milk Prices Hit New Lows
Farm milk prices have declined sharply. The USDA’s November Federal Order Class III benchmark price dropped to $19.95 per hundredweight, down $2.90 from October and the lowest since July. Despite this decline, the 11-month average of $18.92 is still higher than last year’s $17.11 but trails 2022’s $22.09.
Class IV milk prices fared better, rising to $21.12 in November, up 22 cents from October and 25 cents above the prior year. However, both Class III and IV prices are far below 2022 averages, reflecting softer market conditions.
Cheese and Butter Production Trends
Cheese production in October reached 1.226 billion pounds, a 1.0% increase over October 2023. Wisconsin led the surge with 315.2 million pounds, a robust 4.3% year-over-year increase. California’s production also grew month-over-month but lagged slightly behind last year’s levels. Meanwhile, Idaho and New Mexico showed mixed results, with the latter experiencing a 10.8% decline compared to 2023.
Butter production climbed to 167.5 million pounds in October, marking a 3.1% year-over-year increase. Despite this growth, the pace has slowed compared to the double-digit gains seen in prior months.
Yogurt and ice cream production also showed strong growth, with yogurt output up 11.9% and hard ice cream rising 11.8% year-over-year.
Trade Outlook and Tariff Concerns
As President-elect Trump prepares to take office, the potential for new tariffs looms large. Dairy industry leaders are wary of trade disruptions, especially given the importance of Mexico as the top export market for U.S. dairy products. While Trump’s previous term included the renegotiation of the U.S.-Mexico-Canada Agreement (USMCA), the dairy sector successfully emphasized Mexico’s critical role in sustaining exports.
October dairy exports declined 1.9% year-over-year, driven by reduced shipments to Southeast Asia and Canada. However, cheese exports rose 12.4% to 88.8 million pounds, marking the 10th consecutive month of gains as competitive U.S. prices buoyed demand.
Market Dynamics and Future Projections
Expanding cheese production capacity in the U.S. is prompting concerns about whether demand can keep pace. Cheddar output in October rose to 332.3 million pounds, a 6.2% month-over-month increase, though still 3.1% below last year. Butter inventories remain robust, and nonfat dry milk stocks are up 7.4% from 2023.
Rabobank analysts predict moderate improvement in dairy margins by 2025, with feed costs expected to hit four-year lows. While milk output has returned to growth, the expansion of dairy herds remains limited due to strong revenues from beef-on-dairy programs, which constrain cow availability.
Global Market Trends
On the international stage, the Dec. 12 Global Dairy Trade (GDT) auction posted a 1.2% gain, led by lactose and whole milk powder, while cheddar prices fell 3.2%. The results indicate steady global demand for key dairy products despite elevated prices.
Analysts are optimistic about export opportunities, noting that lower U.S. cheese and butter prices compared to global benchmarks could enhance competitiveness in 2025.
Industry Sentiment
Dairy producers are cautiously optimistic as they navigate these turbulent market conditions. While falling prices and trade uncertainties pose challenges, long-term projections suggest potential for profitability if production costs stabilize and demand for U.S. dairy products continues to grow.
With the industry closely monitoring tariff developments and balancing domestic supply and international demand, the coming years will test its resilience and adaptability.
Farm milk prices have declined sharply. The USDA’s November Federal Order Class III benchmark price dropped to $19.95 per hundredweight, down $2.90 from October and the lowest since July. Despite this decline, the 11-month average of $18.92 is still higher than last year’s $17.11 but trails 2022’s $22.09.
Class IV milk prices fared better, rising to $21.12 in November, up 22 cents from October and 25 cents above the prior year. However, both Class III and IV prices are far below 2022 averages, reflecting softer market conditions.
Cheese and Butter Production Trends
Cheese production in October reached 1.226 billion pounds, a 1.0% increase over October 2023. Wisconsin led the surge with 315.2 million pounds, a robust 4.3% year-over-year increase. California’s production also grew month-over-month but lagged slightly behind last year’s levels. Meanwhile, Idaho and New Mexico showed mixed results, with the latter experiencing a 10.8% decline compared to 2023.
Butter production climbed to 167.5 million pounds in October, marking a 3.1% year-over-year increase. Despite this growth, the pace has slowed compared to the double-digit gains seen in prior months.
Yogurt and ice cream production also showed strong growth, with yogurt output up 11.9% and hard ice cream rising 11.8% year-over-year.
Trade Outlook and Tariff Concerns
As President-elect Trump prepares to take office, the potential for new tariffs looms large. Dairy industry leaders are wary of trade disruptions, especially given the importance of Mexico as the top export market for U.S. dairy products. While Trump’s previous term included the renegotiation of the U.S.-Mexico-Canada Agreement (USMCA), the dairy sector successfully emphasized Mexico’s critical role in sustaining exports.
October dairy exports declined 1.9% year-over-year, driven by reduced shipments to Southeast Asia and Canada. However, cheese exports rose 12.4% to 88.8 million pounds, marking the 10th consecutive month of gains as competitive U.S. prices buoyed demand.
Market Dynamics and Future Projections
Expanding cheese production capacity in the U.S. is prompting concerns about whether demand can keep pace. Cheddar output in October rose to 332.3 million pounds, a 6.2% month-over-month increase, though still 3.1% below last year. Butter inventories remain robust, and nonfat dry milk stocks are up 7.4% from 2023.
Rabobank analysts predict moderate improvement in dairy margins by 2025, with feed costs expected to hit four-year lows. While milk output has returned to growth, the expansion of dairy herds remains limited due to strong revenues from beef-on-dairy programs, which constrain cow availability.
Global Market Trends
On the international stage, the Dec. 12 Global Dairy Trade (GDT) auction posted a 1.2% gain, led by lactose and whole milk powder, while cheddar prices fell 3.2%. The results indicate steady global demand for key dairy products despite elevated prices.
Analysts are optimistic about export opportunities, noting that lower U.S. cheese and butter prices compared to global benchmarks could enhance competitiveness in 2025.
Industry Sentiment
Dairy producers are cautiously optimistic as they navigate these turbulent market conditions. While falling prices and trade uncertainties pose challenges, long-term projections suggest potential for profitability if production costs stabilize and demand for U.S. dairy products continues to grow.
With the industry closely monitoring tariff developments and balancing domestic supply and international demand, the coming years will test its resilience and adaptability.
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