A brighter horizon might be in store for New York dairy farmers that have survived several years of low milk prices, a new report says.
Excess supply has finally diminished and product that remains will soon begin to supply milk-deficit regions in the South, giving farm incomes a considerable boost.
These are among the key findings Lucas Fuess, director of dairy market intelligence for Chicago-based HighGround Dairy, said in a report prepared for Farm Credit East.
“New York is geographically poised to benefit from these trends,” he said. “While it took until March for the U.S. to show lower milk output, several states were struggling from negative margins well before that and reducing cow numbers and losing dairy farms at high rates.”
Pennsylvania, the nation’s sixth-leading dairy state, has experienced production declines from the year before for 16 straight months. In fact, cow numbers in March were down 30,000 head from 14 months before, indicating it’s highly unlikely that milk output will rebound soon.
In Virginia, the herd size is down 11,000 since January 2018, but the impact on overall production is even greater because of its smaller base. There have been double-digit declines in production for seven straight months.
“In that same timeframe, New York milk output has been remarkably resilient,” Fuess said. “Cow numbers in the state are actually up 2,000 head in March versus the beginning of 2018, and New York has shown expanded milk output each month since June.”
For several years, surging production contributed to more and more milk dumping. The Northeast Federal Milk Marketing Order, which stretches from New Hampshire to Virginia, typically accounts for more than half — and at times up to 89% — of the milk dumped in the U.S.
This returns very little value to farmers.
In June 2016 alone, 41 million pounds of Northeast milk were disposed of, the most in recent history. But the 2018 peak, in June, was significantly less at 31 million pounds.
“The lower trend suggests that milk has become less oversupplied in recent years,” Fuess said. “Coupling milk production declines with milk dumping data, it is likely that 2019 will show some of the lowest volumes of milk needing to be disposed of in recent history.”
This March, for example, only 8 million pounds of milk were dumped, the lowest figure since 2016.
“Perhaps more importantly, New York and Northeast dairy farmers could see higher milk checks, as a result of milk utilized being valued at higher class prices where it is actually processed,” Fuess said. “Lack of excess milk has the South looking elsewhere. However, steep production declines in Pennsylvania and Virginia have tightened milk in that region as well.”
What does this mean?
Plentiful milk in New York and New England will head south, fulfilling processing needs there while making up for steep production declines in states such as Virginia and “increasing milk prices across the Northeast marketing area,” Fuess said.
In a separate report, also distributed by Farm Credit East, Mark Stephenson, director of dairy policy analysis at the University of Wisconsin, shared another perspective on milk marketing trends.
His findings focus on the relationship between production and processing capacity.
About one-third of Northeast milk is processed in cooperatively-owned plants, with the rest in proprietary plants. Nearly half of the milk volume processed by both types of plants is made into storable dairy products.
“While overall demand for dairy products has increased, consumer demand for fluid milk has been on the decline, demand for processed dairy such as yogurt, cheese and butter has increased, as has export demand for powder,” Stephenson said. “This has put pressure on the processing infrastructure of the Northeast to shift capacity to meet these demands.”
Most plants operate five or six days per week. But it’s estimated that going to 6.5 days per week would increase production about 2 billion pounds.
But while consumer trends are quite clear, Stephenson points out that “shifting the region’s processing infrastructure is an expensive and time-consuming process.”