TRENDING: DAIRY CONSUMPTION Fluid slides, but good news elsewhere U.S. fluid milk consumption continued its four-decade slide in 2017.
Through the first eight months of the year, monthly USDA reports estimated sales of all fluid milk were running about 2.2 percent behind the same period in 2016. In its latest annual summary, the USDA reported per-capita consumption has declined from 247 pounds (31 gallons) per person in 1975 to 154 pounds (19.25 gallons) per person in 2016.
If it’s any consolation, the pace of total and per-capita consumption decline to have slowed, thanks in part to a rejuvenation of whole, flavored whole and whole organic milk. One other point of interest: Organic milk sales now represent about 5.4 percent of total fluid consumption.
There was good news elsewhere, with increases in cheese, butter and yogurt consumption offsetting fluid milk’s demise. U.S. per-capita consumption of all dairy products (on a milk-equivalent, milkfat basis) rose 16 pounds from 2015, the second-largest annual jump dating back to 1975. The two-year (2015-2016) per-capita increase of 30 pounds was also the largest two-year increase dating back to 1982-1983.
Per-capita U.S. cheese consumption in 2016 was a record 36.62 pounds, up 1.25 pounds (3.5 percent) from 2015 and the sixth consecutive record-setting year. Annual per-capita butter consumption has held steady or increased every year since 2011, hitting a new high of 5.7 pounds per person in 2016.
Although per-capita yogurt consumption declined in both 2015 and 2016, to 13.7 pounds per person, it’s still about seven times higher than 1975.
Although small in comparison, plant-based milk alternatives (almond, soy, coconut, cashew, rice and other plant-based beverages) are making marketing inroads.
If it’s any consolation, the pace of total and per-capita consumption decline appears to have slowed, thanks in part to a rejuvenation of whole, flavored whole and whole organic milk. 
TRENDING: EXPORTS, TRADE
Improvement mixed with uncertainty
Lending muscle to the outlook for stronger milk prices, U.S. dairy exports continued to build on gains started at the end of 2016. First-half 2017 export volumes were the most in three years, according to Alan Levitt, vice president of communications and market analysis at the U.S. Dairy Export Council (USDEC).
Sales were led by record volumes of nonfat dry milk/skim milk powder and whey products, as well as a 24 percent year-over-year gain in cheese exports.
By mid-year, those hoping exports would provide a springboard for milk prices received disappointing news: After 12 straight months of year-over-year growth, U.S. dairy export volumes declined in July. Weak sales of nonfat dry milk/skim milk powder, particularly to Southeast Asia, depressed overall U.S. export totals through the third quarter.
Heavy European milk production and fresh concern about the European Commission’s handling of burgeoning skim milk powder stocks, plus the crash of the butter market from record-high prices, turned market sentiment sour heading into the final stretch of 2017.
Meanwhile, new leaders took the reins of U.S. agricultural and dairy trade in 2017 – with divergent views.
Tom Suber, who served as the president of USDEC since its inception in 1995, retired. His high-profile successor was former U.S. Ag Secretary Tom Vilsack, a strong proponent of multi-national trade agreements.
But new “exporter-in-chief” President Donald Trump immediately ended U.S. participation in Trans-Pacific Partnership negotiations and demanded renegotiation of the 25-year-old North American Free Trade Agreement (NAFTA).
U.S. dairy leaders embraced NAFTA renegotiations that attempted to fix trade challenges with Canada but warned a new treaty must maintain market access with its best customer, Mexico. With little progress as talks moved slowly into late 2017, political rhetoric regarding dairy trade with Canada became more contentious, and Mexico initiated bilateral agricultural trade talks with other countries.
After years in which U.S. dairy exports were equivalent to about 15 percent of milk production (total solids basis), Vilsack unveiled a “big, hairy, audacious goal” of boosting the percent of U.S. milk production exported another 5 percent by 2021. He called for more coordination among USDEC and its members, dairy co-ops, processors and marketers.
TRENDING: FOOD LABELS
The Year of the Label
2017 might be called “the Year of the Label.” More food companies joined the “non-GMO” and “free from” bandwagons, while the use of dairy terms on plant-based products sought to take advantage of the “nutritional halo” of real dairy products.
In January, Senate (S. 130) and House (H.R. 778) versions of the DAIRY PRIDE Act (Defending Against Imitations and Replacements of Yogurt, milk and cheese to Promote Regular Intake of Dairy Every day Act) were introduced in early 2017. The bills require the FDA to enforce labeling regulations (CFR 131.110) defining “milk” as a product of a cow, with similar definitions for yogurt and cheese products.
Those bills became a major focus of the National Milk Producers Federation (NMPF), which launched multiple initiatives during the year.
Though federal policy exists to prevent the use of “milk, cheese, yogurt” and other common terms on non-dairy products, “the FDA has unfortunately allowed these decidedly non-dairy copycats made from nuts, beans, seeds and grains to label their products using dairy-specific terms,” said NMPF president and CEO Jim Mulhern.
In the absence of a strong federal role in food labeling, he said, nutritionally inferior imitators will continue to pass themselves off as suitable substitutes for real milk.
Later in the year, a coalition led by the Plant Based Foods Association (PBFA) lobbied against the proposal. PBFA is a trade association representing 88 makers of plant-based foods, including plant-based “milks, cheeses, ice cream and yogurt.”
NMPF also launched a “Peel Back the Label” campaign to focus consumer attention on “fear-based” food labels. The labeling trend is particularly concerning for the dairy industry, threatening the availability and use of production management tools and technologies, according to NMPF.
The “Peel Back the Label” campaign includes a watchdog website to call out food companies utilizing “free from” labels and marketing campaigns. Prominent dairy companies Dean Foods and Dannon are on the list.
The labeling trend is particularly concerning for the dairy industry, threatening the availability and use of production management tools and technologies, according to NMPF.
TRENDING: IMMIGRATION REFORM
Proposals offered, but politics still rules
A central theme in the 2016 presidential election was immigration reform and border security. As the 2017 congressional calendar wound down, the political rhetoric continued, with some legislative proposals offered.
Gaining the most support among dairy organizations was the “Agricultural Guestworker Act,” a bill designed to replace the existing H-2A program with a new H-2C program. It was introduced by House Judiciary Committee chairman Bob Goodlatte (R-Virginia).
The program would allow both current and incoming laborers to obtain work visas up to 36 months in length. As many as 500,000 visas would be available annually. The H-2C program would be administered by the USDA rather than the U.S. Department of Labor.
A coalition of dozens of dairy farm organizations, led by the National Milk Producers Federation (NMPF), support the Agricultural Guestworker Act. NMPF is part of the Agriculture Workforce Coalition (AWC), a group of farm organizations attempting to seek agricultural labor solutions.
In early September, President Donald Trump set a six-month expiration date on the Deferred Action for Childhood Arrivals (DACA) program. Implemented under executive order of former President Obama, DACA sought to protect children (also known as “dreamers”) brought into the U.S. by illegal immigrants.
Under the plan announced by U.S. Attorney General Jeff Sessions, people already enrolled in DACA remain covered until their permits expire. If that happens before March 5, 2018, they are eligible to renew them for another two years, as long as they applied by Oct. 5, 2017. No new applicants have been accepted under the program since Sept. 5.
Several bills have been introduced to deal with DACA, including everything from prohibiting federal funds to apprehend, detain or remove any alien previously granted DACA protection to offering “dreamers” a path to citizenship.
In Idaho, an already skittish dairy industry raised concerns over a proposal to lease Jerome County jail space to the U.S. Immigration and Customs Enforcement (ICE), fearing the contract would be the first step in increased enforcement action against immigrant dairy workers.
In mid-October, the American Dairy Coalition – citing comments made by ICE director Tom Homan posted on C-SPAN – warned dairy producers workplace enforcement actions and tougher crackdowns on employers could increase.
TRENDING: MARKETS
Milk, producers with no home
With imbalances related to surplus production and shortfalls in processing capacity, pressure mounted to find a home for all that milk. Sometimes it wasn’t possible.
For the eighth time in three years, the Northeast Federal Milk Marketing Order authorized temporary milk dumping/disposal provisions, this time for the period of Nov. 22, 2017 – Jan. 8, 2018. Similar dumping provisions were established for the Mideast FMMO for the period of May 1 – July 31.
With burdensome milk supplies and the costs to move or dump excess milk escalating, Dairy Marketing Services LLC (DMS), the marketing arm of Dairy Farmers of America, set a termination date for milk contracts involving about 180 members of the National Farmers Organization, primarily in New York, Pennsylvania and Vermont.
DMS also gave about 700 independent Northeast dairy producers a timeline to find another milk market or join the cooperative and share in the costs.
In an effort to cap milk production in the Midwest, Family Dairies USA implemented a base program, effective May 1. Additionally, Prairie Farms scrapped one plan for establishment of a base program, then went back to the drawing board. (Prairie Farms has declined comment on what eventually transpired.)
Along with excess production, loss of markets resulted in dairy farmers losing their milk contracts in the Midwest.
In mid-March, Wisconsin’s Nasonville Dairy told about 15 farmers the company no longer had room for their milk after the loss of a large cheese contract.
On April 1, Grassland Dairy told about 75 dairy farmers in Wisconsin and Minnesota the company no longer had processing capacity for about 1 million pounds of milk per day due to changes in Canadian policies, effectively shutting off exports of Grassland’s ultrafiltered milk. While many of those producers found at least temporary homes for their milk, the ripple effects sharply impacted the milk premium structure and milk prices.
While many of those producers found at least temporary homes for their milk, the ripple effects sharply impacted the milk premium structure and milk prices.
TRENDING: MPP-DAIRY
Safety net has holes to fix
On the heels of two years in which dairy producers struggled economically, criticism of the federal dairy safety net, the Margin Protection Program for Dairy (MPP-Dairy), escalated.
Many blamed congressional budget tinkering in the 2014 Farm Bill – specifically the change in how feed costs were adjusted in milk income calculations – for MPP-Dairy’s lack of effectiveness. Even though dairy farmers and industry analysts complained of breakeven milk price levels at best, monthly MPP-Dairy calculations reported farmers were making $9 to $10.50 above feed costs, well above the highest indemnity payment triggers levels.
With the expiration of the program still nearly two years away, House and Senate ag committees began to hold hearings in early 2017, and dairy organization leaders called for changes to be implemented in the 2018 Farm Bill. Proposals called for changes to feed cost calculations and lower premiums for participation.
Producer experiences with the program left many disenchanted, and 2017 participation diminished to a bare minimum. Nearly all milk enrolled in the 2017 coverage year was at the catastrophic ($4-per- hundredweight) coverage level only; about 2 percent of milk was insured at buy-up coverage levels of $4.50 per hundredweight and above.
New U.S. Agriculture Secretary Sonny Perdue heard the complaints and offered producers an “opt-out” option for 2018. With an enrollment deadline of Dec. 15, it remained to be seen how many producers took him up on that offer.
Meanwhile, the American Farm Bureau Federation and American Farm Bureau Insurance Services worked on another alternative safety net.
The proposed Dairy-Revenue Protection program would be similar to crop revenue protection policies, protecting against unexpected declines in milk prices, unexpected declines in milk production or both. In October, the proposal was submitted to the Federal Crop Insurance Corporation for consideration.
Producer experiences with the program left many disenchanted, and 2017 participation diminished to a bare minimum.
TRENDING: PRICES, PRODUCTION
A promising start but ending poorly
The year dawned bright, with January 2017 U.S. milk prices averaging $18.90 per hundredweight (cwt), the highest since December 2014. Although not at the record-high levels of 2014, substantial price recovery was anticipated after declines during the previous two years. For many producers, average prices started 2017 about $3 per cwt more than a year earlier.
But breaking free of the dairy market fundamentals’ grip that choked 2015-2016 producer income proved difficult. Global and domestic pressures of increased production and growing dairy product inventories mounted. Early spring provided more economic clouds than sunshine, as lower milk prices and tightening income margins prevailed. Another small surge boosted prices in early fall, but the transition to cooler temperatures was accompanied by cold markets.
The January – September 2017 average of $17.59 per cwt was just $1.79 more than the same period a year earlier, and the gap was narrowing. Based on Chicago Mercantile futures prices as of mid-November, both Class III and Class IV prices for the fourth quarter of 2017 were close to averages for the fourth quarter of 2016. With shrinking premiums, all-milk prices could be below year-ago levels for the October-December period.
Weakness could continue into 2018. Mid-November USDA projections put the 2017 all-milk price at $17.70 per cwt, falling to about $17.35 per cwt in 2018. The USDA-projected 2017 Class III price is about $16.20 per cwt, dipping to $15.95 per cwt in 2018. The projected 2017 Class IV price is $15.20 per cwt, weakening to $14.65 per cwt in 2018.
While year-over-year milk output per cow was generally weak, cow numbers remained historically high in 2017. Milk cow numbers peaked in August, at 9.404 million head, and through September 2017 had averaged about 9.39 million, up about 68,000 head from January-September 2016. As a result, through September 2017 (latest report available), monthly total U.S. milk production had averaged about 2 percent more than the corresponding month a year earlier.
As 2017 winds down, the USDA anticipates slower pace of growth in milk per cow and slightly lower cow numbers. Milk production in 2017 is forecast at about 215.8 billion pounds, up about 1.6 percent from 2016. Looking ahead to 2018, the USDA forecast production at 219.7 billion pounds. If realized, that would be up about 1.8 percent from 2017’s estimate.
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Dave Natzke
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- Progressive Dairyman
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