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World Dairy Markets and the US Farm Milk Price

Christopher Wolf
Dept. of Agricultural, Food and Resource Economics

We live in a world that is increasingly globally interdependent. This has been especially true in the dairy market for US producers in recent years. For many decades the US, along with the European Union (EU), interfered with farm milk price. The resulting surplus production was exported with subsidies. In the past couple of decades both the US and EU have retreated from those policies which resulted in a great deal more price volatility as national and international markets determined milk price.

The growth in US dairy exports began in earnest in 2004 (Figure 1). For many years, the total amount of dairy product exported was less than 5% of production on a total solids basis. In 2004, about 7.5% of total dairy solids were exported at a total value of $1.36 billion. Growth was fairly steady for 2005 through the middle of 2008 with 11% of total dairy solids exported in 2008. The total value of US dairy exports was $3.5 billion in 2008.

milk price
Figure 1. Value of US dairy exports, January 2000-October 2009
milk price2
Figure 2. International Cheddar Cheese Price (Oceania), Jan 2005-Dec 2009.

The global economic crisis that began in the fall of 2008 shrank the demand for dairy products world-wide. Demand for US exports, with the exception of dry whey, fell off sharply. The result was that both the quantity and price of exports collapsed (Figure 1).

World prices for dairy products dropped by 50% or more between late summer and the end of 2008. Figure 2 displays the international cheddar cheese price which is representative of the decline in milk price.

The recovery in the international cheese price that began in September 2009 has been lending support to domestic cheese prices. If the export markets can recover, the US farm price will follow suit.





 

 

 



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