Advice for dairy farmers: Break-even in US is market turning point

The longer term prospects for dairying have not changed.

They are still fairly positive, and I am encouraged by usually reliable analyst I know, who predicts that there will be a very significant improvement in dairy prices next year.

World dairy prices have always been cyclical, but they have reached a new low in 2016.

Prices depend on supply and demand, and unfortunately supply has exceeded demand in recent times.

The main reasons are low grain prices and slow demand from China.

Three quarters of the world’s milk production comes from mainly grain-fed cows.

These are mainly in very large herds in the US.

The amount of milk produced in the US largely depends on the grain/milk price ratio.

Despite the current low grain prices, this ratio is getting close to break-even point.

These US dairy farmers can easily cull heavily or reduce cow yields without affecting profitability, and this is likely to happen.

Combined with an expected increased demand, dairy prices should move in the right direction.

Furthermore, the majority of New Zealand farmers are in serious financial difficulty, and this should curtail production.

There is a significant reduction in milk production in South America.

And in the EU, the voluntary milk reduction scheme should also have an affect on supply.

That said, milk prices continue to disappoint, and dairy farmers have had a bad year.

Large expanders and heavily borrowed farmers are particularly affected.

Too many farmers expanded as if there was a guarantee of high milk prices.

Expand gradually and expand only within available resources, and manageable borrowing, was always the best advice and remains so for the future.

Some of the banks were over-generous with loan facilities which are causing some problems at present.

But established, efficient farmers will comfortably ride out the storm, and look forward to better milk prices, which no doubt will be available for the coming season.

The exceptional grass growth is helpful in overcoming some difficulties.

If we get favourable autumn grazing conditions, a lot of extra milk with good solids can be produced, which should make up for some of the effects of poor prices.


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