CALMAR, Iowa – Fred Hall, Iowa State University dairy specialist from northwest Iowa, gave a presentation about the dairy outlook Jan. 21 during the Iowa Dairy Days 2020 in Calmar.
    “We have to understand dairy exports, demand, production, consumption and what’s in storage,” Hall said. “They all play an important role in establishing price.”
Exports
    Hall said for the first 11 months of 2019, 14.6% of the U.S. dairy production was exported. That fits in with the average within the last five years, which stood at 14.7%. Within the last two months, it has been 15.8%, he said.
    “More and more exports are huge,” Hall said. “If you listen to the news, you would think we’re not exporting anything. USMCA (United States-Mexico-Canada Agreement) didn’t really move the market a lot that day.”
    According to November 2019 reports, Mexico continues to be the No. 1 importer of U.S. dairy products, buying $124.3 million dollars worth. This number did not change from one year prior; however, Southeast Asia jumped 57% to $96.5 million from 2018 to 2019 in its U.S. dairy products imports. Similarly, South America increased 73% in one year to $40.7 million. China also increased its U.S. dairy imports by 16% from 2018 to 2019.
    “Would anyone have bet on that?” Hall said. “Their dairies are not growing rapidly for the demand from their consumers. We need to try to increase (their imports even) more.”
    The product being exported the most is milk powders at 80%.
    “We’re not big users of powders in this country,” Hall said.
    Hall said the United States Department of Agriculture has a goal of exporting 20% of U.S. dairy production.
    “That’s not out of reach,” he said.
    In comparison, Hall said the United States exported less than 4% of its dairy products in 2000.
    “When we are able to export, that drives prices,” Hall said.
    However, the United States must also import a small amount of dairy to keep good trade relationships. Most of the imports are butter.
    “There’s a perception that Irish butter is super high quality and that product is really increasing,” Hall said.
    The U.S. butter price was around $2, while world markets were at about $1.60.
    “Right now, a large percentage of butter being created in this country is churned from imported butterfat,” Hall said. “If we can buy it cheap enough, churn it, put it in storage and sell it at the U.S. price, that’s good business for the processors.”
Consumption
    While exports are important, so is consumption.
    “What really moves product out of the supply line is consumption here in the United States,” Hall said.
    Restaurants are a big part of dairy product consumption.
    “When I grew up, every meal was eaten at home,” Hall said. “That’s not the norm today.”  
    Fluid milk sales have been in steady decline since the 1970s when soft drinks became the No. 1 beverage purchased. In 2017, bottled water took over the top spot.
    “We always hear it’s nut juice that’s the problem,” Hall said about milk’s beverage competition. “It’s a pretty small chunk of the pie. It’s not as big of an issue for us as we want to believe.”
    Despite this decline in fluid milk demand, the United States per capita consumption of butter, yogurt, American cheese and other cheeses has increased from about 20 pounds in the 1970s to about 60 pounds now. Yogurt and other cheeses have been big drivers for this.
    “We’re a huge manufacturer of mozzarella,” Hall said.
Storage
    The U.S. cheese stocks have been down in 2019, and cheddar cheese price is over $2, the highest it has been since about 2014.
    As of November 2019, U.S. butter stocks were at the lowest they have been in 2019.
Production
    The country’s herd size is stabilizing and production in the United States has increased just under 1% in 2019. In the first three quarters of 2019, most of the decrease in milk production happened in the Southeast.
    “Does that mean fluid plants were shuttered?” Hall said. “No, they put milk on wheels and brought it from the Northeast, Michigan or Texas.”
    The biggest growth in the United States came from western states, especially Texas at a 7.03% increase in milk production.
    Within the Upper Midwest, these states saw production increases: South Dakota and Michigan both at 2.52%, Minnesota at 1.13%, Wisconsin at 0.55% and Iowa at 0.51%. Illinois decreased production by 8.4% as did North Dakota at 2.38%.
    “Having a place to process is important,” Hall said.
    U.S. dairy cow culling was up in December, according to the Agriculture Department’s latest Livestock Slaughter report. An estimated 265,400 head were sent to slaughter under federal inspection, up 9,300 head from November and 4,200 or 1.6% above December 2018. The 12-month cull count stands at 3.2 million head, up 71,200 head or 2.3% from a year ago.
Forecast
    Hall said Class III milk price is driven by cheese, protein, whey and butter.
    “As a rule of thumb, 10 times the average price of CME blocks and barrels will be the Class III price,” Hall said.
    Positive forecast factors include a slowing milk production, declining stocks, strong domestic demand and trade deals, Hall said.
    Negative factors include trade negotiations, slowing economies, a possible U.S. recession and better heifers which means more milk on the market and more need for quality feed.
    Hall said predictions for half all-milk price for the first half of 2020 is near $20 and the second half is well over $20. The 2020 average price could be $1.30 over 2019.
    “That could be 50 cents off depending on spring flush,” Hall said.
    This year’s weather does not look promising, as Hall said 2020 could look a lot like 2019.
    “If you owned a tractor and ground, you know what that was like,” he said. “Going into the fall 2019, we didn’t have the moisture profile we have now. If we get a lot of snow and a wet spring, we will be dealing with a lot of what we did last year.”
    Bankers are also a little hesitant for the year ahead.
    “They’re telling us we have to improve some balance sheets,” Hall said.