US Dairy Producers Discarded 43m Gallons of Milk in 2016
Some of the milk was spread on fields, placed in manure lagoons or used as animal feed. Other quantities were lost during transport or rejected at processing facilities. The total was equivalent to roughly 66 Olympic-sized swimming pools, according to reporting by The Wall Street Journal.
Raw milk is perishable, so it cannot be held indefinitely while producers wait for stronger prices or demand. Processors were also carrying large stocks of dairy products, including cheese. The resulting bottleneck left some milk without a practical or economically viable destination while herds continued producing throughout the year.
Production continued after prices fell
The imbalance followed a period of strong prices. The US all-milk price reached $25.70 per hundredweight in September 2014, with a hundredweight equal to 100 pounds. US milk output then rose to 208.6bn pounds in 2015, 1.2% above the previous year. Analysts said that dairy supply adjusts slowly because expanding or shrinking herds takes time.
By April 2016, the all-milk price had fallen to $15 per hundredweight. Nevertheless, the USDA projected in June that annual production would reach 212.6bn pounds. Farmers could reduce some expenses or cull less productive cows, but many costs of maintaining a herd could not be removed simply by lowering output.
Feed prices had declined in late 2015 and stayed relatively low through most of 2016, according to the agency’s later review. Output per cow increased by 1.4%, and total US production reached a record 212.5bn pounds for the year, 1.7% more than in 2015.
Global supplies added to the pressure
Federal reports described relatively weak international demand, particularly in China, while the dollar remained strong. Dairy supplies also increased elsewhere. The European Union ended its milk quotas in April 2015, after which EU production rose. Russia’s ban on most dairy imports redirected European products towards markets in which US exporters competed.
US trade figures reflected the changing market. Between 2014 and 2015, cheese exports fell by 114m pounds, or 14%, while dry-whey exports declined by 106m pounds, or 22%. Imports of cheese and butter increased, bringing more pressure to domestic processing, storage and sales channels.
Converting surplus raw milk into another product was not always an immediate remedy. Contemporary accounts reported that, in some cases, the cost of transporting and processing milk made disposal less expensive than delivery to a plant. Dairy Management Inc. worked with food manufacturers and restaurant chains to increase the use of dairy ingredients.
Farm prices and retail prices diverged
The price received by farmers fell by about 40% between September 2014 and April 2016. The retail price of whole milk declined by 16% over approximately the same period, from $3.77 a gallon in October 2014 to $3.16 in April 2016.
For the full year, the average all-milk price was $16.24 per hundredweight, down from $17.12 in 2015. The fourth-quarter average recovered to $17.67, but the annual figure remained lower. The USDA associated the 2016 price level with ample global supplies, slower demand growth in some markets, Russian trade restrictions, stronger European competition and the stronger US dollar.
