“History doesn’t repeat itself, but it often rhymes.”
I’m reminded of this saying, usually attributed to Mark Twain, as we look at dairy’s price outlook over the next few months. For the first time since before the retaliatory trade tariffs hit last summer and ruined a promising market outlook, real signs of a milk-price recovery have once again been apparent, just as an improved USDA safety net takes effect to provide at least some relief to struggling producers.
But just like a year ago, trade turmoil – in this case, new and higher tariffs against China – now clouds the market outlook. At NMPF we are doing what we can to ensure that history doesn’t repeat itself, and that even if it rhymes, this time the song needs a better melody.
Now in our fifth year of low prices and our third year of trade wounds, we’re hopeful that the market signals — that the worst may be over and that better days may lie ahead – are not derailed by a trade war train wreck.
For some of the positive, hopeful signs:
- After years of rising cow numbers dating to 2011, herd sizes have dropped every month since last July, with March’s decline the biggest of the entire period. The steady decline in cow numbers in March finally pushed milk production to levels lower than a year earlier, reducing the supply overhang that has depressed prices.
- Futures markets have noticed the tightening. Forecasts for milk prices this year as reflected in futures show a rise of $1.80 per hundredweight over last year, stabilizing around $18, and have been rising by the week.
- The higher milk prices, combined with steady feed costs, have improved producer margins.
- And finally, sustained improvement in world prices for butter, skim-milk powder and cheese are in turn helping lift domestic prices, showing how global demand can benefit U.S. dairy, despite the trade-policy and export challenges we currently face.
These developments show a sector experiencing an improving outlook, perhaps putting us back on the path we appeared to be on in 2018, when retaliatory tariffs against dairy from Mexico and China disrupted exports to two of our largest markets. The question before us is whether the economic fundamentals today are strong enough to maintain the nascent recovery.
That’s why there is significant work to do to help producers weather the dairy crisis over the next few weeks and months.
The immediate task is to encourage and guide producers through signup for new dairy programs, most importantly the new Dairy Margin Coverage program. At a congressional hearing on dairy’s struggles convened April 30, Minnesota farmer Sadie Frericks told lawmakers she’d be signing up for five years of coverage at the maximum, $9.50 per hundredweight level. “Dairy farming requires smart business decisions. This was an easy one,” she said after the hearing.
At the same time, we can’t accept gridlock in Washington’s ability to improve trade policy. A renewed tariff spat with China cannot be an end in itself – it must lead quickly to a bilateral agreement that lowers tensions and establishes more and better market access. The Administration must lift the steel and aluminum tariffs on Mexico and Canada, and the Congress must ratify the U.S.-Mexico-Canada Agreement this year. We also need quick resolution to trade discussions with Japan so that U.S. dairy interests are not further punished by tariffs much higher than those negotiated by our European and Oceania competitors. These steps are necessary to provide some measure of certainty and new opportunities for dairy producers, something badly needed after the economic turmoil of recent years.
These are building blocks for longer-term recovery that need to be laid down now, when the urgency of dairy’s hard times is still fresh in the public’s mind and concern about them isn’t limited to the dairy sector itself.
If dairy truly is getting back on its feet – and we hope this spring’s positive signs show it’s about to happen, despite deeply worrisome trade tensions – then the next step will be to gain traction and move forward, because we don’t want history to repeat itself.
A little rhythm would be nice, but we’re ready to be done with the blues.