Domestic and global prices for milk and most dry dairy products continue to hover at or slightly above multi-year lows with little prospect for improvement until 2017 when slowing growth in milk production is expected to make an impact. But there are near-term bright spots in the otherwise dour dairy outlook. Cheese and especially butter prices have held up better than expected, and domestic demand for milk products overall has been good, in part due to low prices.

Rabobank, in its Dairy Quarterly Q1 2016, offered a pessimistic outlook for much of 2016, forecasting that active milk production and growing inventories globally, the strong dollar and Russia’s absence from the market for at least another year would limit export opportunities for U.S. dairy products.

“Talk of (global) price re-covery has quieted,” Rabobank said, noting that “stronger-than-expected E.U. production and weaker demand from developing markets” pressured prices in recent months. “As these downside factors took effect, we saw the prices move roughly 15% lower.” Although milk production continues to grow globally, the growth rate entering 2016 was slower.

Rabobank noted that farmers globally have been slow to reduce production in reaction to low milk prices for a number of reasons, including the need to generate cash, climatic conditions, milk price supports, “pure hope” and other factors. Milk producers also have benefited from low feed prices.

Conditions in the global dairy market are important because of their impact on the U.S. dairy industry. Low prices and reduced demand globally have limited exports of U.S. dairy products and resulted in increased imports in some cases. As a result, milk and dairy product supplies are larger, which in turn pressures prices in the United States.

Milk jugs, dairy
Cheese and butter prices have held up better than expected.