TWIN FALLS • A growing Chinese economy, drought conditions in New Zealand and “ho hum” dairy production in Europe are expected to drive international demand for Idaho dairy to an all-time high.
Price jumps for milk products are good news for dairymen in the Magic Valley, said WOW Logistics Account Manager Mark Lopshire.
“Anybody in the cheese industry is just going, ‘Yoo-hoo!’” Lopshire said, “especially milk producers here, because milk has been depressed for the last couple of years. This is a good time to be in the cheese industry in southern Idaho.”
“Right now, we’re seeing cheese just continue to ramp up. Prices for cheese are crazy out there. They’ve gone from $1.60 per pound to almost $1.85 per pound in just the last couple of months.”
Much of the excess dairy in the Magic Valley is stored at the WOW warehouse in Jerome, so Lopshire sees first hand the changes in demand for dry milk powder and cheese.
“Six months ago, everybody was sitting on their cheese and their dry products were bursting at the seams,” Lopshire said. “Now it’s starting to pick up and we see product going out. Markets are changing, the price on whey, nonfat dried milk and cheese especially are going up.”
According to a report from the U.S. Department of Agriculture, China’s growing economy is driving demand for milk products. China’s import of milk powder, for example, increased from 100,000 metric tons in 2008 to more than 500,000 metric tons in 2012. The USDA expects demand for dry milk in China to surpass 600,000 metric tons by the end of this year.
Drought A World Away
Although recent rainfall has possibly put a stop to New Zealand’s worst drought in 30 years, the dry spell did considerable damage to the country’s dairy supply.
New Zealand is one of the world’s largest dairy producers, said Dave Kurzawski, dairy analyst for FC Stone in Chicago. While New Zealand struggles to get back on its feet, the United States is taking up the slack on the international market, picking up business from countries like China.
“It was a confluence of events both weather related in New Zealand but also demand related for things like infant formula,” Kurzawski said. “European milk production was ho hum at best. Really the U.S. became the balancing point for really the last six weeks and, frankly, I think it will be the case for the next few months.
“We’re not over with that yet but the initial ramp up, the initial perceived worries — reaction to drought, reaction to better than expected demand out of Asia — basically turned us into the balancing point for the world.”
Rising Prices May Not Mean Rising Profits
Kurzawski, who helps Magic Valley dairy producers hedge volatility in the market, said the drought hasn’t been the main concern of Idaho dairymen. Profits are at the forefront of their worries, Kurzawski said, and rising feed prices may bolster the benefits of international demand.
“That’s the immediate concern with these guys,” Kurzawski said. “They want to know what’s going on in the market, but they really want to tell you what’s going down in Twin Falls, Jerome, Burley and Nampa because there seems to be a lot of problems with producers up in that area.
“I don’t think that’s always going to be the case, but I think that’s been a real struggle for a lot of guys and I don’t think that’s over yet.”
Independent Milk Producers Manager Rick Naerebout of Twin Falls said despite what happens overseas, this year’s profits will depend on the success of corn farms. Naerebout said the Environmental Protection Agency’s ethanol mandate has driven the price of corn to $7 per bushel, straining dairymen who rely on the crop to feed their cows.
“A lot of our struggle since 2009 is the fact that feed prices are extremely high,” Naerebout said. “It really puts a squeeze on margins … It’s a really tough issue for our dairymen to get their hands around.”
Idaho’s International Presence
Since the 1970s, Idaho dairies have produced more milk products every year than the year before with the exception of 2009, Naerebout said. This year is projected to be another record production year.
“We’ve completely saturated our domestic market,” Naerebout said. “As worldwide demand grows, we have to focus on that market because that’s the market that we don’t have captured.”
“Everybody looks at (Idaho) as the next global market,” Lopshire said. “We see a number of U.S. firms going over there with office spaces in Singapore.”
The popularity of American cheese worldwide is not because countries like China have acquired a taste for American products, Kurzawski said.
“American dairy products are synonymous with quality,” Kurzawski said. “You don’t get that same virtue going into Chinese products. That’s really kept them coming back.”
A diminished U.S. dollar, Kurzawski said, and Idaho’s adaptation to international expectations are other reasons for the increase in worldwide demand. He said even if the drought in New Zealand didn’t happen, demand for Idaho dairy would still be on the rise.
“American cheese manufacturers have done a good job adapting to what the world wants and that’s the key, more than they’ve just decided to love American products like they love Levi’s,” Kurzawski said. “It’s definitely our ability to welcome international business that’s spurred that growth.”