ST. ALBANS — An oversupply of milk on the world market is likely to keep milk prices down through 2016, members of the St. Albans Cooperative Creamery were told at their annual meeting Saturday.
Tom Suber, president of the U.S. Dairy Export Council, which provides assistance to producers seeking to export dairy products, delivered the news.
“Two-thousand sixteen is going to remain about as bad as 2015 was,” said Suber, who added that production would continue to exceed demand.
“U.S. suppliers will be chasing market share,” he said.
U.S. dairy exports, which had been increasing for more than a decade, with a slight dip during the Great Recession, have begun to level out at just fewer than 15 percent of milk solids produced in the U.S. Last year, saw a dip in exports.
Milk powder was the one product that remained a strong export. However, it was selling at a lower price than 2014. “We’re moving a surplus product,” said Suber.
In the long term, getting that surplus product out of warehouses will help prices increase when the milk supply begins to drop, he explained.
However, it is unclear when that will happen.
The European Union (EU) has removed limits on production, boosting milk production across the EU at the same time a trade embargo against Russia cut European producers off from their largest market. Prior to the embargo, the EU was selling 45 million pounds of cheese per month to Russia, said Suber.
The milk that was going into cheese has been redirected into powder and butter fat, he said.
“Europe has unleashed its ability to compete,” said Suber.
At the same time, China has pulled back from what had been large purchases of milk powder, using previously purchased powder that is sitting in warehouses instead.
Overall, the top five dairy producers, including the U.S., added 12.3 billion pounds of milk annually to the world market, while worldwide demand dropped 16.3 billion pounds, explained Suber.
There is some good news. When Chinese demand was driving prices up, that forced customers in other nations out of the market, putting the price beyond what they could afford, said Suber. Those customers are now coming back.
U.S. exports are expected to improve by 2020, he said, as income and population growth in other countries boost the demand for dairy products.
In addition, while Europe and the U.S. have large internal markets, which provide some protection from international competition, New Zealand does not, said Suber. As a result, he expects production in New Zealand to begin to fall as a result of sustained low prices for dairy products on the international market.
Another bright spot is the growth in cheese exports. The U.S. is the leading exporter of cheese, which is a wide market with a lot of variety from artisan cheeses to cheeses for retail restaurants.
It’s also an area New Zealand and Australia, countries that export mostly milk powder, are unlikely to enter. Cheese factories are a major capital investment and with small internal markets, it’s unlikely companies in those two countries will take the plunge into cheese making, explained Suber.
Growth in cheese consumption worldwide also offers U.S. dairy producers the opportunity to export components for making cheese, he added.
Suber concluded his remarks with a look at the Trans-Pacific Partnership (TPP), a proposed free trade agreement between the Pacific Rim countries, the U.S. and Canada.
“It is a disappointment in a profound way,” said Suber.
“We have opportunities in Japan and we have opportunities in Canada,” he said. “They are way short of what they should be.”
The agreement, which has not yet received Congressional approval, would increase Canadian imports of dairy products over the first 19 years of the agreement, mostly in fluid milk and milk powders.
Canada has long kept limits on dairy imports, choosing instead to balance domestic consumption and supply.
The agreement would limit the ability of countries to impose new tests on food imports without advance notices. Decisions on barring certain foods would have to be science-based and subject to binding arbitration, said Suber.
Although their analysis of TPP is ongoing, Suber said the export council would “probably come out with an endorsement of mild enthusiasm.”