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Stephenson: dairy prices firm for 2013, fluid milk sales continue slide

Year in review for dairy and looking ahead to 2013

Mark Stephenson, Dairy Policy Analyst
Department of Agricultural and Applied Economics
UW-Madison College of Agricultural and Life Sciences
mwstephenson@wisc.edu
Phone (608) 890-3755

3:05 – Total Time

0:19 – 2012 summary for Wisconsin dairy producers
0:49 – Coping with feed costs
1:20 – Looking toward 2013
1:47 – What affects the price of milk
2:23 – The fluid milk drain
2:55 – Lead out

TRANSCRIPT

Summing up the year and looking ahead for dairy farmers. We’re visiting today with Mark Stephenson, Department of Agricultural and Applied Economics, University of Wisconsin Extension in the College of Agricultural and Life Sciences, Madison, WI and I’m Sevie Kenyon.

Sevie Kenyon: Mark, when you sum it up, what kind of year was 2012 for dairy producers here in Wisconsin?

Mark Stephenson: Not a bad year and if you take an overview, one thing [that] was obvious is that they produced a lot more milk. We did have record milk production for the state of Wisconsin. Of course, this was the year that was dominated by drought; not all of our dairy producers in Wisconsin were directly drought impacted, as in crop loss, but all of them were impacted by high feed prices for the feeds that they were purchasing.

Sevie Kenyon: And how does the dairy producer cope with that situation?

Mark Stephenson: A number of ways that they can, many of our dairy producers, of course, grow the bulk of their own feeds, and so to the extent that you weren’t directly impacted by the drought you have a muting of those kind of impacts on cost. Many of the “western-style” dairy producers, and I use that term “western-style”, have no crop acreages, or very little, and they’re buying all their feeds. There, you’re exposed to a lot more of the cost of producing milk.

Sevie Kenyon: What do Wisconsin dairy farmers have to look forward to in the new year?

Mark Stephenson: I think we’re going to have prices that have some rebound to them. It will be a better price year than it was this year. Not a lot, you know, a little more than a $1.00/hundred weight is what I’m currently forecasting. But again, for purchased feeds we are expecting those prices to reduce over this next year, unless we have prolonged drought. If the drought continues then that’s an issue.

Sevie Kenyon: What are the factors that contribute to the swings in prices in the price of milk?

Mark Stephenson: We have what an economist would call a very inelastic demand for dairy products, meaning that consumers are not terribly sensitive to price movements. That tends to get pushed back toward dairy producers. If we’re just a little bit tight on milk supplies, then you can see a big increase in milk prices. If we’re just a little bit long in milk production, have a little bit more than we need, then prices can collapse in order to clear the marketplace. It’s just hard to induce customers to want more dairy products by price alone.

Sevie Kenyon: Mark, what are your feelings about the portion of milk that’s sold as fluid milk?

Mark Stephenson: We’ve been declining in per capita consumption of fluid milk for many years, but the thing that happened this year was that we crossed a threshold; we hit a nice, round number and that number was about 20 gallons of milk per capita that we’ve fallen below. That caused people to back up and raise some alarms. So, we do have declining consumption and much of that, I think, is attributable to the tremendous competition that we have for beverages. I think we have to just acknowledge in the dairy industry [that] we’ve got to be more clever.

Sevie Kenyon: We’ve been visiting with Mark Stephenson, Department of Agricultural and Applied Economics, University of Wisconsin Extension in the College of Agricultural and Life Sciences, Madison, WI and I’m Sevie Kenyon.