Tom Vilsack, president and CEO of the U.S. Dairy Export Council, believes the worst of the economic challenges for dairy farmers could be in the rearview mirror.
This despite growing competition in the beverage aisle and recent uncertainty in the industry amid the decision by Dean Foods, America’s largest milk producer, to file for bankruptcy.
“I’m optimistic about the future,” Vilsack, the former U.S. Secretary of Agriculture, told the RFD Radio Network. “We’re continuing to sell more dairy around the world.”
Domestic consumption of cheese surged to an all-time high in the U.S. this year while butter consumption jumped to a 50-year high.
Meanwhile, dairy exports increased 150,000 to 300,000 metric tons in volume since 2016, while the value of exports increased $970 million in value in September compared to the previous year.
The bump in dairy consumption spilled over into the markets as milk prices continue to climb.
“Dairy prices for farmers are at a five-year high,” Vilsack said. “This reflects domestic consumption that has, for the first time in a long while, equaled production (increases).”
USDA this month pegged its 2019 all-milk price forecast at $18.60 per hundredweight, up from $16.26 last year, while the Class III milk price forecast jumped from $14.61 last year to $17 in the latest forecast.
The 2020 price estimates are even higher at $18.85 per hundredweight for all-milk with a Class III average of $17.50.
Vilsack believes market development efforts helped boost dairy demand worldwide while a buildup of stocks in the European Union finally worked through the system, thus easing supply pressure on the market.
Looking ahead, Vilsack remains optimistic about U.S. dairy sales due in part to the recent U.S./Japan trade deal, recent sales of whey into the Chinese market and possible ratification of the U.S.-Mexico-Canada Agreement.
The recent dairy price improvements were too little, too late, though, for Dean Foods. The 94-year-old company’s sales fell 7% the first half of the year, and with a myriad of debt, Dean Foods elected to file for Chapter 11 bankruptcy protection this month to keep the business operating while it seeks a buyer.
It was working with Dairy Farmers of America cooperative on a potential deal as of mid-November.
This follows a rough stretch in the dairy industry in which the number of operations in Wisconsin were halved the past 15 years. In Illinois, the state lost an average of nearly four dairies per month (23 dairies in total) the first half of 2018 at the height of the economic crisis.
“It’s important to note there’s tremendous competition today in the beverage aisle,” Vilsack said. “Plant-based (beverages) are probably less of a concern than some of the water and energy drinks that probably redirected market share more so than plant-based products.
“Our concern with plant-based products is the use of the term, ‘milk,’” he noted. “The industry has asked FDA (Food and Drug Administration) to enforce the rule on the books that only allows the word ‘milk’ to be used if it’s from an animal.”
Despite competition, fluid milk still reaches 94% of American households and adds up to a $100 billion retail industry.