Relief may be coming for Vermont dairies
VERMONT — After five years of depressed milk prices, dairy farmers may be getting some relief. A prediction by one of the region’s largest dairy cooperatives says prices at the bulk tank should rise by a dollar per hundred pounds of milk over the next year.
“The average Vermont farm produces 3.4 million pounds of milk per year,” says Diane Bothfield, dairy chief for the Vermont Agency of Agriculture, Food and Markets. “A dollar per hundredweight is $34,000. That’s a big raise in a year’s time.”
However, Agri-Mark Senior Economist Catherine de Ronde, who last week issued the milk price forecasts, warned that those predictions should be taken with a “grain of salt” due to the current political climate, including the impact of the trade war with China and Mexico.
“In a normal year, where we don’t have all of these trade issues going on, we would say we feel pretty comfortable forecasting 12, even 18 months out,” she said. “That’s a little different right now.”
Agri-Mark, which markets milk for 1,200 New England and New York dairy farms, forecast that the Boston Blend milk prices by the hundredweight could average $18.24 in 2019 and climb to an average of $19.24 over 2020 — the highest year-long average since 2014, according to data from the Northeast Marketing Federal Milk Market Order.
Liquid milk prices have been consistently low in Vermont and in Addison County since 2015, when they fetched a New England average of $16.49 per hundredweight of liquid milk, which is around 11 gallons. According to de Ronde, milk prices tend to fluctuate in three-year cycles.
This five-year slump is unprecedented. In 2018, the average milk price per hundredweight dipped to $15.44, the lowest in over 10 years.
Vermont has lost 27 dairy farms statewide since January, Bothfield said.
In 2018, political tensions between the United States and two of its largest milk export markets — Mexico and China — started affecting the price of milk that farmers receive. In 2017, the United States exported more than $577 million worth of dairy, often in the form of feed for hogs, to China — it’s third largest export market for dairy. In 2018, the U.S. exported $1.4 billion of dairy products to Mexico, the largest foreign market for American dairy.
As the Trump administration imposed tariffs on Chinese goods last year, China imposed retaliatory tariffs against United States imports. After the Trump administration lifted Mexican exemptions from some existing tariffs, Mexico also imposed tariffs on some U.S. dairy. According to de Ronde, that’s a problem for Vermont dairies because exports reduce oversupply in the U.S. and thus can raise prices here.
“We rely very heavily on exports to move milk out of the marketplace when there is an excess,” de Ronde said.
According to data from the U.S. Dairy Exports Council, dairy exports to China were up 17 percent in the first half of 2018 but fell 33 percent in the second half of the year — a drop equivalent to more than 10,400 tons of milk product per month. However, overall, U.S. dairy exports reached a record-high volume in 2018, accounting for about 15.8 percent of U.S. milk solids production in 2018, a value of $5.59 billion.
De Ronde says those dips in exports to China had a clear impact on milk prices in the Northeast, where supply was higher than demand for much of 2018 and 2019. In a normal year, milk exports function as a sort of safety net for the domestic market.
“Milk prices are based on supply and demand, so when you have more milk supply than there is demand, milk prices go down,” she said. “Moving milk out of the market before that happens is key to keeping prices stable.”
By way of example, de Ronde points to data from May 2018, when Mexico announced retaliatory tariffs on cheese and other agricultural products in response to a May action by the Trump administration. The same month, the administration announced tariffs on goods from China. De Ronde made one forecast the week before tariffs were announced and another the week after.
“In the course of a week or two difference, milk prices dropped by $1.40 per hundredweight,” de Ronde said.
It took the milk market the better part of a year to recover from that hit, she said.
“In early 2018, we were just starting to see some recovery, and by April, milk prices were hovering around $19 to $20 (per hundredweight) and we were in a really good position to start to get out of this mess,” de Ronde said, noting that milk prices are still suffering.
“Had we not had the hit (from tariffs), we probably would have been a dollar over where we were for all of 2019,” she said on July 23. It’s even impacted the barrel cheese market, another place where excess milk is often stored. “We expect this trend to continue into 2020.”
TRADE WAR RELIEF
This past Thursday, the U.S. Department of Agriculture announced $14.5 billion in compensation for farmers through its Market Facilitation Program, part of a $16 billion relief package.
According to Wendy Wilton, Vermont state executive director of the U.S. Farm Service Agency, dairy farmers will be reimbursed for 20 cents per hundredweight of a year's worth of milk production based on the highest year of production registered with the FSA between 2011, 2012 and 2013. Payments will be made in three rounds, with the first paid out in mid-to-late August and subsequent payments made in November and early January, depending on market conditions.
Further, the USDA will purchase $1.4 billion in surplus agricultural commodities affected by trade retaliation, with approximately $68 million earmarked for dairy products nationwide.
“It’s not a lot of money overall,” Bothfield said.
However, de Ronde is tentatively optimistic about 2020.
“Except for a slight dip following the holidays, which is a normal seasonal phenomenon, it looks like we will be on this slow, steady growth rate. Trade is the biggest thing we are watching,” she said.
Typically, American milk production grows by a factor of 2 percent year over year. From 2018 to 2019, production remained constant. “To be flat is rare, and definitely a positive for milk prices,” de Ronde said.
But she foresees other challenges on the horizon for farms.
“With a lot of corn belt crops not getting into the ground this year, it’s expected that there could be reduced feed available for dairy farmers and that could drive up feed prices starting as early as this fall,” de Ronde said. However, reduced feed quality could suppress production further, which is a positive for milk prices.
She’s skeptical that increased prices will yield a spike in milk production right away. “We are going into the fifth year of low milk prices. In a pattern like that, it doesn’t matter how big and efficient you are: you’re still struggling. Though we are expecting a little bit more this year, it’s not enough to cover the struggles and losses farmers have had for such a prolonged period of low milk prices.”
Bothfield seconded this, but says she’s “concerned” about how an increase in national milk production would affect Vermont.
“Many farms have deferred maintenance and investments and bills to pay,” she said. “There are a lot of people waiting for that extra money in the milk check.”