Milk prices and dairy policy in 2012

Mark Stephenson, UW-Extension Dairy Policy Analyst
Department of Agricultural and Applied Economics
UW-Madison College of Agricultural and Life Sciences

(608) 890-3755

Mark Stephenson talks about what the dairy industry may expect in the 2012.

3:28 – Total Time

0:20 – 2012 milk price forecast
0:43 – 2011 record milk prices
1:10 – Taking advantage of exports
1:45 – New kid on dairy export block
2:07 – Dairy policy and the farm bill
3:00 – Advice for dairy producers
3:18 – Lead out


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Sevie Kenyon
: Mark, welcome to our microphone. What can you tell dairy producers about the year ahead?

Mark Stephenson: I can tell you I think with some assurity that the year ahead is going to be a bit more marginal then this past year’s been. I mean 2011 closed the year out as the highest milk prices we’ve ever had, currently forecasting something like a $1.50 to $1.75 a hundredweight, less.

Sevie Kenyon: Mark, let’s just take a quick look back at the year. What caused those record prices?

Mark Stephenson: Well, we had recovery. We had recovery in a lot of different ways. We had recovery domestically we also had stronger recovery in what we would call developing economies. And, those countries are importing dairy products, and quite a lot of them. That’s our real growth opportunity for the U.S. dairy industries…the export of dairy products.

Sevie Kenyon: And what steps can the American or even the Wisconsin dairy business take to better play in that international market?

Mark Stephenson: I think we need to consider our product mix. Currently the major items that we’re selling are the fairly low value items. In export markets, its non-fat dry milk or skim milk powder; its whey products. We probably ought to be considering whether we can sell a little bit more of our higher value products like cheese. We are selling more… a new trade agreement with South Korea…we’re supplying as much as 45 percent of all of South Korea’s demand for cheese right now.

Sevie Kenyon: How is the position of the country changed recently, relating to this international dairy trade?

Mark Stephenson: You know, we’re really only five years into being any kind of major exporter. We’re still new, we’ve still got a lot to learn about that. We still have investments to make. We need to have facilities, in my opinion, in other countries. They’re our customers; we need to be close to them to respond to their needs.

Sevie Kenyon: Mark, where does dairy policy and the farm bill factor into the year ahead?

Mark Stephenson: [laughs] I think it’s going to be one of those very interesting, fascinating years from farm policy and it’s really hard to script. But we do have dairy policy that we know has been introduced and it’s likely that that will at least be the starting point for discussion. That’s a very different policy than we have today. It would get rid of the MILC program, as an example, it would get rid of dairy product price support program, it would replace that with a margin insurance…that is not required, but could be signed up for. And if you do that, it would also carry with it the obligation to reduce milk production or not be paid for a portion of your milk, when we’re in a bad margin situation.

Sevie Kenyon: And Mark, do you have any advice for our dairy producers out there?

Mark Stephenson: Watch for margin opportunities. There are instruments you know you can use, like futures markets or forward contracting, and lock in a margin protection, if you’re vulnerable. You’ll need to be a little bit careful; I think, in the years ahead here to make sure you’re going to be long term in this business.

Sevie Kenyon: We’ve been visiting with Mark Stephenson, dairy analyst, University of Wisconsin, in the College of Agricultural and Life Sciences, Madison, Wisconsin…and I’m Sevie Kenyon.

For more information about the Status of Agriculture in Wisconsin, visit the Wisconsin Agriculture Outlook Forum website.


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