OSU Dairy Economist: Milk Prices, Global Export Demand and New Margin Protection Program Will Be Topics to Watch in 2015

COLUMBUS, Ohio – Milk prices, the global export demand and the 2014 farm bill’s new Margin Protection Program will be the topics to watch in the dairy industry next year, according to a dairy markets and policy specialist with Ohio State University’s College of Food, Agricultural, and Environmental Sciences.

U.S. milk production and dairy exports have increased significantly over the last decade, with an increase in milk production of 34 billion pounds from 2003 to 2014 and a dairy export increase of 25.7 billion pounds, said Cameron Thraen, associate professor in the college’s Department of Agricultural, Environmental and Development Economics (AEDE) and a member of the National Program on Dairy Markets and Policy. He also holds an appointment with Ohio State University Extension, the college’s statewide outreach arm.

“Dairy export demand is an exploding part of U.S. milk production,” Thraen said. “We are exporting a significant share of U.S. production over what we did a decade ago. “Dairy exports were 4 percent of milk production in 1996’s 154 billion pounds, and now this figure is 15.5 percent of 2014’s 204 billion pounds.

“This increased export demand accounts for 75 percent of the growth in U.S. milk production.”

However, with U.S. milk prices expected to soften in 2015 and a slowdown in global demand for U.S. dairy exports due to increased dairy supplies in Europe and Oceania and slowing dairy imports in Russia and China, the dairy boom seen over the last decade is showing signs of slowing down, Thraen said.

“At the end of 2014, U.S. dairy commodity prices are making a significant realignment with lower world prices, and it is natural to assume that this realignment will result in dramatically lower income over feed cost margins for 2015,” he said. “The strong U.S. dollar and high U.S. dairy product prices could bring storms to the U.S. dairy export market in 2015.” 

With the recent rise in dairy exports, the number of cows and production rates on dairy farms in the U.S. have increased significantly over the last decade, Thraen said.

In 2001, the average number of cows per dairy farm in Ohio was 61, while in 2014 this number reached 96. Additionally, milk production per Ohio dairy farm in 2001 was 1 million pounds, while in 2014 this number reached 1.9 million pounds. In Ohio in 2014, there were an estimated 267,000 milk cows for a total milk production of 5.4 billion pounds, resulting in $1.3 billion in gross revenue from the sale of milk, a record for Ohio, Thraen said.

“These Ohio numbers reflect what is happening at a national level,” he said. “Nationally, the number of milk cows at the end of 2014 is approaching 9.3 million head, and production is gaining speed, reflecting strong equity building on dairy farms after difficult financial periods in 2009 and in 2012.”

Also currently impacting the U.S. dairy industry is the passage of the U.S. Agricultural Act of 2014, better known as the farm bill, and the new voluntary Dairy Margin Protection Program (MPP), or dairy safety net, in the legislation, Thraen said.

“For the first time in the history of U.S. dairy policy, dairy farmers will have a program that allows them to take a stake in their own national safety net policy,” he said. “For the first time they are given the opportunity to individually select a level of financial support and to pay a modest amount for their selection.

“This is a watershed event.”

Through his research appointment with the college’s research arm, the Ohio Agricultural Research and Development Center, Thraen’s research focuses on market and financial risk analysis and risk mitigation in the U.S. dairy industry. Research output from this program was instrumental in the development of a web-based decision support tool for MPP.

The tool helps producers calculate total premium costs and administrative fees associated with the program, as well as provides a daily forecast of net MPP payments that will be made during the coverage year and the total MPP benefit that the producer can anticipate. The decision support tool is the official educational tool supported by the U.S. Department of Agriculture’s ’s Farm Service Agency, which has federal responsibility for administering the Margin Protection Program.

Thraen also collaborates with a team of dairy economists from the University of Illinois, the University of Wisconsin, the University of Minnesota, Michigan State University, Cornell University and The Pennsylvania State University to further develop the web-based decision support tool for MPP along with additional educational materials. The team has authored a website dedicated to supporting the U.S. dairy industry at dairymarkets.org. 

MPP enrollment closed Dec 5. To learn more, visit fsa.usda.gov/mpptool.

Thraen spoke Dec. 1 during the kickoff of the college’s 2014-2015 Agricultural Policy and Outlook series. The series will go through Jan. 29 at numerous locations across Ohio. The meetings will feature presentations by CFAES experts on key issues in the agricultural community for 2015, including policy changes and market behavior with respect to farm, food and energy resources, and the environment. 

The meetings are open to the public. A meal is provided with each meeting and is included in the registration cost. More information on the meetings, including policy briefs and presentation files from each of the presenters, can be found at go.osu.edu/2015outlook.

To read Thraen’s policy brief prepared for the 2014-2015 Agricultural Policy and Outlook series, visitgo.osu.edu/uhN.