Pa.’s dairy outlook less than bright for 2016

AFP Correspondent

DUNCANSVILLE, Pa. (Jan. 5, 2015) — At one of the three Pennsylvania Dairy Industry Professional Roundtable meetings in mid-December, the attendees shared their insight on 2016 forecasts and the related profitability situation.
The Center for Dairy Excellence hosts the profitability meetings thoroughout  Pennsylvania twice a year.
Alan Zepp, the center’s risk management program manager, led the discussion on top issues facing the dairy industry. Unfortunately, milk prices are forecast to remain low in the first half of 2016.
Zepp noted that the Class III prices on the Chicago Mercantile Exchange currently average less than $15 per cwt.
Zepp pointed out, however, that lower feed costs can help boost margins. For the first six months, margins are expected to average between $6.50 and $8.
Butter prices, which reached a record in September, have bolstered profitability. The butterfat value in milk has been trending upward since 2000. While the protein value has vacillated during this time, in the past year, it dropped considerably in 2014.
This affects how the components impact dairy farmers’ price, and profits.
Maximizing butterfat levels now, Zepp said, is more important than ever. To elaborate, Zepp noted that butterfat in 2000 contributed 33.9 percent of the Northeast Federal Order milk price in October, while protein was 40.1 percent.
Also in October 2015, 59.3 percent of that milk price came from butterfat, while protein contributed only 28.3 percent.
National butter sales have increased seven percent, and this higher demand has pushed butterfat values to $3.1830 per pound from $1.2522 per pound in 2000. Protein values crashed from $1.6938 per pound in 2000 to $1.3205 per pound.
Zepp explained the situation further in his column for a dairy periodical reporting, “Maximizing components is primarily about maximizing milk production, but in a slow milk production growth environment, increasing component percentages with feeding changes and culling strategy modifications will increase farm profitability.”
Although the milk supply has been balanced with the processing demand in this region this fall, Zepp said many producers are now being asked to limit production increases. On average, Americans drink 37 percent less milk today than in 1970. Even though cheese and yogurt sales have risen, excess milk has resulted in lower prices.
Exports, which reached over $700 million for the month of March 2014, had been absorbing the surplus milk production. But by September 2015, exports declined to less than $400 million in that month due to the increased value of the dollar and numerous factors in the global market.
Zepp noted that the 29 percent increase in nonfat dry milk and skim milk powder, however, brightened the dismal export market. U.S. cheese also is continuously being prized internationally.
The roundtable group turned to methods to cope with lower prices. A producer suggested focusing on what dairymen can control. Production efficiencies and curbing costs as much as possible, including purchased feed, should aid the bottom line.
In view of the squeeze on profits, one of the bank officials present suggested confining new investments into projects that offer quick payback.
The Center’s executive director, John Frey, said that some farms could investigate opportunities to diversify into dairy beef programs, for example.
With the current situation of static domestic demand, several attendees expressed dismay at soy milk being marketed as “milk.” Some observed that sports teams constitute a market for milk in recovery drinks. In addition, tea is more profitable for the processors to sell than milk.
“We always were better at production than selling,” observed one of the dairymen.
An attendee experienced in dairy promotion advised the group on the availability of progressive techniques to stimulate consumption. Many of the ideas fit with the current tendency of consumer groups demanding transparency in their food supply. Both milk processors and cooperatives are implementing promotional dairy image programs. Several media outlets, including social, are being tapped.