Basic economics tells us that our milk price is based on the balance of supply and demand. When supply is higher than demand, our milk price goes down. When demand is higher than supply, our milk price goes up. In 2022, dairy farm families benefited from a demand that was higher than supply, with year-over-year growth in our US milk production up just 0.2 percent to 226.6 billion pounds in 2022. However, looking ahead to 2023, analysts expect that equation to change, with milk production ramping up and inflation starting to place downward pressure on dairy product consumption.
Already, we are starting to see dairy product stocks building, with butter stocks posting the first year-over-year increase in 16 months to 216.3 million pounds in December. Cheese stocks were up 0.2 percent year-over-year to a new December high of 1.445 billion pounds. At the same time, US consumption of fluid milk continues to trail year-ago levels, falling 4 percent year-over-year to 44.5 billion pounds in 2021.
With dairy product stocks building and year-over-year milk production growth up closer to 1 percent in the last six months of 2022, milk prices are expected to fall in 2023. USDA is currently estimating a $21.60 per cwt. all-milk price this year, down nearly four dollars from the all-milk price of $25.55 per cwt. in 2022. The decrease in price is attributed to an expected weaker domestic demand and more price pressure in the international markets.
Setting Our Sights Overseas
International markets continue to play an increasingly significant role in the mailbox price dairy farm families receive for their milk. In the past two decades, US milk production has grown by more than 25 percent. However, per capita consumption – or domestic consumption – has only grown by 11 percent. At the same time, dairy products moving overseas are five times what they were in 2000, going from 500,000 metric tons in 2001 to nearly 2,500,000 metric tons in 2022.
In 2022, dairy exports were equivalent to more than 18 percent of the nation’s total milk supply on a milk solids basis. Dairy product exports surpassed the annual record in milk solids exported set in 2021, making last year the third consecutive year for record volume growth. The number of dairy products moved overseas totaled 2.4 million metric tons, up 5 percent from 2021, with the value of those exports estimated at over $9.6 billion, up 25 percent from the previous year and the first time that annual export value surpassed the $8 billion and $9 billion thresholds.
The US still falls behind the European Union and New Zealand as the third largest dairy exporter. However, headwinds facing those top two dairy exporters could open new opportunities for the US to increase its share of the global market. Both countries are facing land limitations and increasing environmental regulations, with New Zealand currently experiencing a year-over-year decline in milk production. Season-to-date, the Kiwi state is down 2.7 percent on a volume basis and 2.1 percent on a milk solids basis.
The Role of the US Dairy Export Council
The US Dairy Export Council plays a significant role in helping to promote and expand access for US dairy in other countries across the globe. The organization was formed more than 25 years ago and is funded through the Dairy Checkoff Program and by the 113 member organizations who are a part of it. USDEC has a simple goal: to enhance demand for US dairy products and ingredients worldwide. They do that by helping US suppliers meet market needs of the other countries wanting to import dairy. In addition to their work overseas, USDEC also closely monitors the marketplace and what is being demanded by different countries.
Recently I had the opportunity to meet with representatives from USDEC about opportunities for dairy exports coming out of Philadelphia. To date, a much higher percentage of US dairy exports are moving off our West Coast shores than from the East Coast. However, with the recent expansion of the PhilaPort system, there is significant opportunity to move more dairy through that port. In fact, earlier this fall, we visited PhilaPort and witnessed the vast number of refrigerated containers leaving the port empty. It’s a huge opportunity for a processor looking to move product overseas.
One statistics USDEC referenced during our meeting was the growing demand for dairy proteins worldwide, as more and more developing countries become more capable of affording higher quality protein sources like dairy. Currently about 13.3 percent of the global protein consumption comes from dairy proteins. That is up by 1 percent in the past ten years, while protein consumption in general has grown by 40 percent globally in the past 20 years.
While domestic consumption of dairy will always be an important factor in our mailbox milk prices, the impact that dairy exports have on that price will only continue to grow. With dairy farm families continually looking for ways to grow their businesses, the nation’s milk supply will continue to grow. With more than 95% of the world population outside of our borders, finding ways to meet the opportunities that exist overseas can help dairy demand keep pace with this growing milk supply, keeping our milk price equation in balance.
Editor’s Note: This column is written by Jayne Sebright, executive director for the Center for Dairy Excellence.