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The influence of consumers choice in the dairy industry

Increasing consumption is what is needed to improve dairy farmer incomes and restore the supply/demand balance.

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The influence of consumers choice in the dairy industry

There have been and continue to be numerous analysts predicting better milk prices this year than last year and if the first two months of the year are any indication of prices, that certainly should be the case.

Current fundamentals do not suggest a very strong market. However, consumption could increase if consumers are provided with greater choices.

It may be difficult for milk prices at the farm level to increase over the next few months. Farmers are experiencing lower prices than they have since the end of 2016 to some extent. However, so far milk prices for the first two months of 2017 have averaged $3.06 per hundredweight better than the first two months in 2016. It is still unclear as to why milk prices have been better, but certainly, dairy farmers are not complaining. Current price still leaves much to be desired with many having difficulty cash flowing. Feed prices are lower than a year ago, but the cost of other goods and services continues to escalate.

There have been and continue to be numerous analysts predicting better milk prices this year than last year and if the first two months of the year are any indication of prices, that certainly should be the case. However, there are still 10 months of pricing ahead and current fundamentals do not suggest a very strong market. Monthly milk production reports show strong gains over the previous year and have consistently shown that for quite some time. Inventory of cheese and butter continues to increase as product output exceeds demand. Reasonable feed prices are spurring strong milk output with dairy farmers increasing cow numbers. Current U.S. dairy cow numbers total 9,367,000 head and the largest national herd since Q2 of 1996.

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The old saying is that low prices cure low prices and high prices cure high prices. That may be an only saying, but it is still relevant. The job of the market is to clear product when supply is larger than demand and to reduce demand when supply is tighter than desired. This goes for any industry with complacency being a killer of any business.

To some extend the dairy industry falls into the category of becoming complacent. Dairy products are a staple in many households and enjoy growing demand not only domestically, but internationally as well. Yes, there are strides to increase export business and increase domestic interest through advertising. U.S. farmers produce a high-quality product that consumers can feel confident about. Although new products are being developed that appeal to consumers, there is some backlash over the recent movement to provide or non-Genetically Modified Organism (non-GMO) labeled milk or dairy products. Some well-known farm groups have come out against companies looking to source milk from dairy herds that are fed with non-GMO feed and produce various products with that labeling. Those in opposition cite the idea that progress that has been made in food production is going to be reversed to some extent. They indicate yields will be reduced and more pollution is going to be a result due to more passes of equipment over the fields. I believe the greater issue here is that it will require more management by farmers to produce the grain that will be non-GMO. Whether there is validity to non-GMO food or whether it is just another misinformed movement is immaterial. The bottom line is what consumers desire. If some consumers desire a choice of non-GMO food and are looking for it in the grocery store, then there is a place for dairy farmers and manufacturers to fill this demand. Those consumers who do not feel this is an issue for health and well-being will purchase food accordingly. Those who desire organic milk or food will purchase according to their desire to eat more naturally.

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I believe providing consumers a choice of dairy products will actually increase consumption of dairy products. After all, there may be a percentage of consumers that are purchasing alternative forms of dairy products due to the inability to find non-GMO products. Almond milk, rice milk, and soybean milk could be used as an example. If there was a selection of non-GMO milk in the dairy case, some of those consumers may move back to consuming pure milk again thus increasing overall consumption of dairy.

Increasing consumption is what is needed to improve dairy farmer incomes and restore the supply/demand balance. Until then, it appears milk prices will need to decline.

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Robin Schmahl was born and raised on a dairy farm in Elkhart Lake, Wisconsin. After graduating from high school, he attended college to study music. Robin then returned to the fourth-generation family farm in 1980 to work in partnership with his father before taking over the dairy farming operation. Robin joined Allendale, Inc. in 1996 as a commodity broker. In 1998, he became the manager of the branch office located in Elkhart Lake, Wisconsin. In 2001, Robin worked with DTN Ag1 and developed a dairy marketing program. Then in 2002, his office changed its status to become an IB (Introducing Broker), known as AgDairy LLC, a full-service commodity brokerage firm providing hedging and marketing programs for grain and dairy, as well as trading in all commodities. Robin’s market knowledge, analysis and practical experience makes him a natural and frequent speaker throughout the United States. Robin is a Dairy Analyst for Telvent DTN writing dairy commentary twice daily for the company. He also writes a bi-weekly column on the U.S. dairy industry for the international publication “Dairy Industry Newsletter” and “Milk Profit Brief” found on AgWeb.com as well the weekly dairy market wrap-up for AgWeb radio. Robin is a consultant for the Gehrson Lehrman Group on various agricultural topics. He has written articles, does radio commentary and been quoted in various publications as well as continuing his brokerage responsibilities. Robin has his office on the active family farm. To contact Robin email him at: [email protected] or call 877-256-3253.

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