December 21, 2009
  

US dairy industry faces supply and demand challenges

Cooperative milk processors want to see long-term policies put in place to help their dairy farmer-members - and want dairy farmers to be able to steer their own future.

Processors discussed the dairy crisis with regional dairy farmers during the 43rd annual N.D. Dairy Convention in Mandan.

Ken McMahon, milk procurement co-ordinator with Associated Milk Producers, Inc. (MPI), based in New Ulm, Minnesota, and Randy McGinnis, vice-president and chief operating officer at Central Area Dairy Farmers of America, Inc. (DFA), based in Kansas City, Mo., represent two of the major milk processors in the Upper Midwest.

McMahon said nationally, milk production has dropped. But at MPI, milk volume from Midwest producers has increased and has now jumped ahead of California and New Mexico, he added. He said there has been extreme volatility in Class III milk prices per hundredweight over the past few years.

U.S. milk exports have dropped as the world drought has eased in places like New Zealand, McMahon said. According to McGinnis, in 2004 the milk production growth rate per year changed from the traditional 2 percent to about 4 to 4.5 percent per year. While the U.S. milk production was growing faster than demand, there was not a low price cycle back when supply started to outstrip demand, McGinnis said. In 2003 and years prior, the U.S. was exporting about 4-4.5 percent of its milk production, he said. During those years, dairy product exports exceeded imports.

Then in 2004 to 2005, more dairy products began to be exported and that continued until 2008. While production was going up during this period, the excess supply was going to exports. Domestic demand dropped at that time and began to stagnate as did the economy as a whole. When the world recovered its dairy production, other countries didn't need the U.S. dairy exports.

When the support price increased through Congress in July of this year, the market followed that support price, he explained. According to McGinnis, the American DFA has already made efforts to explain the situation to the congress but to no avail.