Despite relatively low milk prices over the last three years, Wisconsin’s farmers have begun to increase dairy production, which experts believe would help stabilize dairy prices in the long-run.
Wisconsin has seen a steady decrease in milk prices since 2014. This decrease in prices has resulted in an excess supply of milk in Wisconsin, which could be converted to other dairy products or be exported. Both potential uses can impact milk prices in the long run.
Milk’s price per quintal, about 220 pounds, was approximately $24 in 2014. It currently stands at $16.
Brian Gould, associate professor of agricultural and applied economics at University of Wisconsin, said farmers had high profits and production in 2014 and 2015, but acknowledged it was an anomaly, since milk prices are so low. He said profits from dairy production this year were lower than in those years, but still good enough to keep production high.
“My hypothesis is that we have normal profits now but they are still high enough to maintain this level of production,” Gould said.
John Umhoefer, executive director of Wisconsin Cheese Makers Association, said there were several reasons behind the low milk prices. Cattle feed and fuel prices have decreased, which makes it easier for farmers to produce more for a lower cost. This has led to an excess supply of milk in the state, Gould said.
Gould said the excess supply could be problematic because it is expensive to store and export milk. Milk can only be exported for a certain distance before it spoils, so most of it would be turned into other dairy products such as milk powder and cheeses.
But Gould said Wisconsin may not have the facilities to accommodate the expanding supply of milk, making it more difficult to manufacture other dairy products since there are few facilities that can do so.
Umhoefer said low milk prices are also unsustainable. He said these low prices impact farmers negatively because they are not getting enough for what they produce.
“[Farmers] can weather some storms, but you don’t want the storm to last the whole year,” Umhoefer said.
Low prices are part of a “supply and demand” cycle, Umhoefer said. Currently, the supply of milk is high, but the demand does not match it. If prices remain low, farmers will get rid of unproductive cows and reduce milk supply. This will eventually drive prices and demand for milk up, he said.
Gould said the decrease in prices was not new and could actually be helpful in raising milk prices in the long-run. The expanding supply of milk would eventually drive down prices so low that Wisconsin’s farmers will be able to export more or would not be able to produce as much.
Exporting will, in the long run, encourage milk prices to rise in Wisconsin, which will be good for farmers, he said.
“It’s clear that if we continue to increase supply, it will put downward pressure on prices … so much that production will stop increasing,” Gould said. “Then with a low milk production, milk prices will rise again.”