More Cow, More Milk Means More Pressure On Prices

U.S. dairy producers continue to churn out more milk. At the same time, questions remain about export demand, trade tensions with Canada, and whether rising feed costs could eventually slow production growth.

"So the theme continues to be there of bigger production, but of course the big reason, not a secret, is that the report showed that cow numbers have increased 199,000 head year over year to 9.71 million head," said Naomi Blohm, senior market advisor for Total Farm Marketing. "So there is at this time, no signs of any slowing dairy expansion. In the United States, we are milking more cows, we have ample production, and for now that's going to keep a lid on prices."

U.S. Demand Is Helping Producers

Blohm said strong domestic demand has helped absorb much of that additional milk production, but supplies are beginning to build.

"Something interesting to note is that our exports, our total dairy exports for June totaled 248,000 metric tons and that was down from about 2% from May and about 5% lower than the previous month from that," said Blohm. "So we're kind of starting to see our dairy exports just slow a little bit, but in general, the demand has been good, but the production, holy production, that continues to be the theme.”

How Much Will Canadian Tariffs Hurt American Producers?

Exports remain a critical outlet for U.S. dairy products. Trade relations with one of the industry's largest customers will bear watching in the months ahead.

"Our U.S. dairy exports topped $1.3 billion, according to the USDA," Blohm said. "And now Canada is saying that they're going to put tariffs on some of our products, anywhere from 15 to 50%. So for dairy, Canada is suggesting that they're going to impose a 50% tariff on milk and some of our cream. And we're not exporting a lot of just like raw products like that, but they put a 25% tariff on cheese and some curds. Last year we exported $135 million worth of cheese and curds to Canada. Again, this is according to USDA. Canada then put a 50% tariff on a range of whey products, which last year was $82 million of U.S. dairy exports."

Are There Changes On The Horizon?

While milk supplies remain plentiful today, Blohm said higher feed costs could eventually change the production outlook.

“What’s going to make us start to maybe cull some of those cows? Well, might be higher price grain," she said. "That's been happening here over the last two months as the entire grain complex had been bearish, bearish, bearish in June and then shifted to bullish in just two months time because of the drought in Europe and then the flash drought we had in the United States and then political strife around the world. So it kind of feels like maybe some of the winds are starting to change for dairy."

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